The report on U.S. gross domestic product released Friday was good, but not good enough to keep the Federal Reserve from making another bold move next week to keep deflation at bay.
Online PR News – 31-October-2010 – – The U.S. economy was growing at only a moderate 2% annual rate in the third quarter, far short of what’s needed to create jobs and reduce deflationary pressures. The Fed is expected to announce on Wednesday that it will buy hundreds of billions of dollars in U.S. Treasury notes from the public in an effort to get the economy moving quicker.
The output gap — the difference between what we produced and what we could produce if we harnessed all our resources — isn’t narrowing as it should. The economy is smaller today than it was three years ago.
But the bad news is that much of the growth in the third quarter came from a huge buildup in inventories. Final sales of goods and services increased just 0.6%. Meanwhile, imports surged again while export growth slowed.
Even though the economy is growing, it’s weak and unbalanced growth. Overall spending by households increased at a 2.6% pace, the best reading for that measure since the end of 2006. But disposable personal income was nearly flat in the quarter, which means consumers were dipping into savings.
The Federal Reserve is already widely expected to announce plans to pump hundreds of billions of dollars into the economy when it meets next week. And Friday's report supports the argument that the economy needs a jolt to get moving again.
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