The Economy Grows Fast But Not Fast Enough

TOM HUDSON, NIGHTLY BUSINESS REPORT ANCHOR: Some good news today on the U.S. economy Susie. It grew in the fourth quarter at its fastest pace in more than year. But, even that growth rate, it was still quite modest.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: That`s right Tom, most of the growth came as American businesses restocked their shelves and as American consumers spent more money. Let`s look at the details. The Commerce Department reported today that the nation`s gross domestic product – this is the value of goods and services produced in the U.S. — rose 2.8 percent between October and December. But many economists were expecting 3 percent.

HUDSON: While clearly not a red hot economy by any stretch of the imagination, there are concerns over whether the U.S. can keep up even this tepid growth rate. Erika Miller reports from New York.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you want to know what`s in store for the economy, it helps to come to this store. Eneslow in Manhattan does not just sell shoes, it makes them in a workshop downstairs. When the economy is doing well, shoppers splurge.

ROBERT SCHWARTZ, OWNER, ENESLOW: When things are good, they`re going to want that second color or they are going to want something for the other part of their lifestyle that they didn`t have a direct need.

MILLER: But that`s not happening these days.

SCHWARTZ: They are buying to need, not to want or desire. That`s what I`m seeing.

MILLER: That means the 15,000 shoes in the back of the store aren`t moving quickly out the door. When companies start building up inventories, it can be a negative sign for the economy. The more merchandise there is in the stockroom, the less need there is to place new orders. And if the trend is widespread, it can force factories to scale back production. But some economists hope the inventory build-up last quarter might actually be a positive omen.

TROY DAVIG, SR. U.S. ECONOMIST, BARCLAYS CAPITAL: It does suggest to us that firms are feeling confident about future consumer demand so are willing to push up their inventory stocks. One thing about this is that it`s unlikely to be a persistent source of growth going forward.

MILLER: Most economists are betting GDP will fall a bit this quarter. But they expect growth for this year will be well above last year.

ANTHONY CHAN, CHIEF ECON., JP MORGAN PRIVATE WEALTH MGMT.: It keeps us out of recession but it`s certainly not gangbusters type of growth.

MILLER: And not fast enough to have unemployment fall significantly. Many firms, including Eneslow, want to hire, but they can`t.

SCHWARTZ: I don`t really need more hands. I need to see a little bit more growth to invest in people, to train them, to get them ready to be successful in my business.

MILLER: And the outlook for the economy depends on whether he and other business owners feel comfortable taking that step. Erika Miller, NIGHTLY BUSINESS REPORT, New York.

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