The third and final data for real gross domestic product ("GDP")
is out and reveals that the U.S. economy is faltering. According to
Bureau of Economic Analysis, GDP shrunk 2.9% in the first quarter
of 2014 contrary to the second estimate of 1% decline and the first
estimate of 0.1% increase. This is the worst performance since five
years. In the fourth quarter of 2013, real GDP had advanced
This leads to the obvious question about whether this decline is
just a mirage of a derailing economy or a real hurdle in the path
of recovery. Divided market sentiments are revealed as we lift the
curtain on this debate.
Market experts believe that the contraction stemmed from an
inclement weather condition that locked consumers indoors, hampered
production and construction activities, and led to soft home and
auto sales. Exports also played spoilsport, falling 8.9% during the
quarter. This indicates that the European economy is still not
completely out of the woods, while emerging nations such as China
and Brazil slowed. Further, the mounting tension in Iraq may hinder
Consumer spending, which accounts for over two-third of the U.S.
economic activity, also grew moderately by 1% in the quarter, down
from the 3.1% jump anticipated, due to lower health care spending
than earlier thought of and severe winter. Moreover, consumer
spending was only up 0.2% for the month of May versus 0.4% gain
envisioned. However, it improved from April, when consumer spending
The belief that the economy is on a recovery path might just
have gotten weaker due to the above factors. However, there is a
section of economists, who believe that the softness in the first
quarter was only temporary. They are hopeful that a much favorable
weather condition now, an improving labor market, recovery in the
housing market and surging demand, will translate into strength in
the U.S. economy as the year progresses. Moreover, an increase of
0.4% in personal income in May also add to the positives.
The Federal Reserve continues to scale down the monthly bond
buying campaign showing rebounding economic activities. The
purchase of mortgage-backed securities and Treasury securities
would be reduced for the fifth time to $35 billion in July from $45
billion. Looking back, the Federal Reserve had initiated a monthly
stimulus program of $85 billion to boost economic growth and keep
interest rates low.
On the other hand, consumer confidence - a key determinant for
the economy's health - has shown improvement. A recent Conference
Board data suggested that Consumer Confidence Index increased to
85.2 in June 2014 from 82.2 in May 2014. What is inspiring consumer
confidence is the improvement in the employment picture. The
unemployment rate is hovering around 6.3%, the lowest in five
years. The U.S. Department of Labor reported that initial jobless
claims decreased by 2,000 to 312,000 in the week ended June 21.
Economists' views on the direction in which the economy is
headed are varied. While some foresee momentum, others believe that
market will lose steam. The somewhat volatile run of the benchmarks
may keep you jittery about making big bets on the stocks. Surely,
you can't sit idle and wait for the economy to pick up; instead you
can tune into
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