US GDP growth slowest in 2 years

[Almighty Colin]

3.1% seasonally adjusted.

Annualized GDP cracked $12 trillion for the first time.

[Almighty Colin]

An unexpectedly sharp fall in German business confidence on Monday provided the clearest evidence yet of a marked economic slowdown in the eurozone.

The decline in the Munich-based Ifo institute's business climate index to its lowest level since September 2003 heightened fears about the second quarter growth outlook in Germany and the eurozone.

[Almighty Colin]

April 26 (Bloomberg) -- Japan's household spending fell for a second month in March and the economy lost jobs, suggesting consumers won't help sustain a recovery from recession.

[Rolo]

Inflation is still manageable, which means interest rates will not suddenly jump, so consumers are not in a state of fear/panic - yet ;-)))

[Rolo]

Experts utter nasty word, 'stagflation'

It's an economic perfect storm.

The economy is slowing, as consumers are cutting back their spending and businesses aren't investing as much. Employers have put the brakes on their hiring plans. Yet, prices are rising at their fastest rate in more than three years.

None of that news, which emerged in two reports yesterday, bodes well for consumers or business owners. Experts say it could point to an economy on somewhat shaky ground.

"The economy lost a lot of momentum in early 2005," said Mark M. Zandi, chief economist at Economy.com in West Chester, Pa. "It's disappointing."

The nation's Gross Domestic Product, the broadest measure of economic activity, grew by 3.1 percent in the first quarter of 2005, compared with 3.8 percent in the last quarter of 2004, according to government statistics. That's the slowest increase in two years.

Much of the growth came from an inventory buildup, and not from consumer spending or business expansion. Businesses may now have to slow their expansion efforts or hiring plans further to make up for the excess product they have.

The Conference Board's Help-Wanted Advertising Index, a key job market indicator, dropped a relatively significant two points in March, to 39. The last time it fell below 40 was in December. "Clearly, something has changed sharply and suddenly," said Conference Board economist Ken Goldstein.

Meanwhile, a measure of inflation that's closely watched by the Federal Reserve rose more than expected in the first quarter. The statistic, known as the core personal consumption expenditure (PCE) deflator, increased by 2.2 percent in the first quarter, a big gain from the fourth quarter's 1.7 percent rise.

The combination of slower economic growth and higher inflation has led some experts to mention the possible return of stagflation - the combination of a stagnating economy and growing inflation.

"It certainly does meet the definition of stagflation," said Irwin Kellner, North Fork Bank's chief economist. "It's not the extremes of the 1970s, but it's certainly a lot different from what it was last year at this time."

Others, however, said yesterday's data did not yet spell stagflation - or an economy in trouble. "This is what I call normalcy, not stagflation," said Joel Naroff, the chief economist of Commerce Bank.

The statistics put the Federal Reserve in a difficult predicament. Normally, the Fed would raise short-term interest rates when inflation is rising. But that could significantly slow an already slow-growing economy.

For now, the Fed is likely to raise rates by a quarter-point at next Tuesday's meeting. But the language in its statement may reflect either a focus on economic growth, and therefore future plans to halt rate hikes, or an eye on inflation and continued rate increases.

Experts disagree on which way policy makers will go, and whatever the decision, economic growth may remain slow, and inflation may keep climbing. "I think the weakness in the second quarter is already baked into the cake," said Anthony Chan, senior economist with JP Morgan Asset Management in Ohio. "If we're going to see more encouraging news, we're talking third or fourth quarter at the earliest."

http://www.newsday.com/business/ny-bzecon4...iness-headlines

[Almighty Colin]

"It's not the extremes of the 1970s". Now there is an understatement. The stagflation of the 1970s and early 1980s included inflation running over 14% at its peak.

Anyway, times are a bit different. There are elements of both inflation and deflation in the world economy. China and India export deflation worldwide with reduced wages and the Chinese export cheap goods. Then there are the various inflationary asset bubbles.