Wednesday, January 31, 2007

Unexpectedly Great GDP Number and Falling Inflation

So we have great news on the economy this morning. The fourth quarter GDP number came in much better than expected and the inflation number dropped more than it had in 50 years. So strong growth, low inflation, As Larry Kudlow put it "Goldilocks Lives".

Excerpts from the Wall Street Journal

U.S. Economy Grows 3.5%; Inflation Gauge Falls Sharply

"The U.S. economy resurged at the end of 2006, overcoming a slump in housing as consumers, sustained by lower energy prices, ramped up spending.

Gross domestic product climbed at a seasonally adjusted 3.5% annual rate October through December, the Commerce Department said Wednesday in its first of three readings on fourth-quarter GDP. That was up from 2% in the third quarter. A price inflation gauge within the report posted its biggest drop in 52 years.

For the whole year, GDP, which acts as a scoreboard for the economy by measuring all goods and services produced, advanced 3.4%, compared to a 3.2% increase in 2005 and 3.9% growth in 2004.....

.....Inflation gauges within the GDP report indicated prices softened significantly during the fourth quarter. The government's price index for personal-consumption expenditures actually fell, slipping by 0.8% after rising 2.4% in the third quarter and 4.0% in the second quarter. The decrease was the biggest since 1.2% in third-quarter 1954."

And below gives the Fed room to duck and cover........

"The PCE price gauge excluding food and energy rose 2.1%, after increasing 2.2% in the third quarter. The price index for gross domestic purchases, which measures prices paid by U.S. residents, inched 0.1% higher, after going up 2.2% in the third quarter. The chain-weighted GDP price index increased 1.5%, after rising 1.9% in the third quarter."

By Jeff Bater - WSJ

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