Earlier this month I noted that…
Late last month [December 2005], for the first time in five years, yields were higher on U.S. Treasury bonds maturing in two years vs. similar investments due 10 years from now. That’s a noteworthy reversal of the market norm called an “inverted yield curve” by Wall Street types. This market rarity could signal that a recession is around the bend. [emphasis mine]
And today we learn that our Gross Domestic Product increased at the surprisingly anemic rate of 1.1% during the fourth quarter of 2005, the economy’s wors showing since the fourth quarter of 2002.
Consumer spending was way off in the last three months of 2005, and is it a surprise? Wages are stagnant at best, while the stock market is still struggling to get back to where it was prior to the Supreme Court’s coronation of Dim Son.
Gross domestic product, the broadest measure of economic activity within U.S. borders, advanced at a surprisingly weak 1.1 percent annual rate in the October-December period — little more than a quarter of the third quarter’s 4.1 percent rate and the weakest for any three months since 0.2 percent in the fourth quarter of 2002.
The softer-than-anticipated data shocked financial markets, prompting a decline in the dollar’s value and a jump in bond prices as investors prepared to shift assets from stocks into debt securities.
Fourth-quarter growth was far weaker than the 2.8 percent rate that Wall Street economists had forecast and reflected widespread softness.
Consumer spending, which fuels two-thirds of national economic activity, slowed to a 1.1 percent rate of growth, sharply below the third-quarter rate and the weakest since a 1 percent gain in second quarter of 2001. Spending on costly durable goods, which include cars and other items intended to last three years or more, plunged at a 17.5 percent rate.
That was the steepest drop in durables spending in nearly 19 years, since a 23.2 percent fall in the first quarter of 1987.
In 2005, GDP expanded by 3.5 percent, slowing from 4.2 percent growth in 2004.
Business investment grew at a 2.8 percent annual rate in the fourth quarter, less than half the third quarter’s 8.5 percent rate and the weakest for any quarter since a 1.1 percent drop in the first quarter of 2003.