CNBC Report: Oops! Economic Growth Wasn't So Great After All

Oops! Economic Growth Wasn't So Great After All

 Reuters.

U.S. economic growth regained speed in the first quarter, but not as much as expected, which could heighten fears the already weakening economy could struggle to handle deep government spending cuts and higher taxes.

Gross domestic product expanded at 2.5 percent annual rate, the Commerce Department said on Friday, after growth nearly stalled at 0.4 percent in the fourth quarter. The increase, however, missed economists' expectations for a 3.0 percent growth pace.
Part of the acceleration in activity reflected farmers' filling up silos after a drought last summer decimated crop output. Removing inventories, the growth rate was a tepid 1.5 percent.
Given the smaller-than-expected increase and signs the economy has weakened in recent weeks, the GDP data will probably weigh on U.S. stocks. It could also give ammunition for the Federal Reserve to maintain its monetary stimulus.

Q1 GDP Up 2.5%

 

CNBC's Rick Santelli reveals the latest numbers on economic growth in the U.S. And Dean Maki, Barclays, discusses what it indicates about the economy and the impact on the markets.

The U.S. central bank, which meets next week, is widely expected to keep purchasing bonds at a pace of $85 billion a month.

Data ranging from employment to retail sales and manufacturing weakened substantially in March after robust gains in the first two months of the year. There are indications the weakness persisted into April.

Broad-Based Gains
 
The GDP showed contributions to growth from all areas of the economy, with the exception of government, trade and investment by businesses in offices and other commercial buildings.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at 3.2 percent pace - the fastest since the fourth quarter of 2010. It grew at a 1.8 percent rate in the fourth quarter of last year.
However, households cut back on saving to fund their purchases after incomes dropped at a 5.3 percent rate in the first quarter - a bad sign for future spending growth. The drop in income was the largest since the third quarter of 2009.
The saving rate - the percentage of disposable income households are socking away - fell to 2.6 percent, the lowest since the fourth quarter of 2007, from 4.7 percent in the fourth quarter of 2012.
Much of the gains in first-quarter spending came from automobile purchases and outlays for utilities, which were boosted by unusually cold temperatures. Consumers managed to step up their spending despite the return of a 2 percent payroll tax and higher gasoline prices.

Despite the spike in gasoline prices, inflation pressures were benign in the first three months of the year.

An inflation gauge in the government's GDP report rose at a 0.9 percent rate, the smallest increase since the second quarter of 2012. The personal consumption expenditure index had increased at a 1.6 percent pace the fourth quarter.

A core measure that strips out food and energy costs rose at a 1.2 percent rate, still well below the Fed's 2 percent target. Core PCE had increased at a 1.0 percent rate in the fourth quarter.
The lack of inflation should come as welcome relief for American households, but it could cause some nervousness at the U.S. central bank, which may see it as a symptom of the economy's weakness.

Another big contributor to growth in the fourth quarter was inventory accumulation, which added a full percentage point to GDP growth after chopping off 1.5 points from output in the final three months of last year.

Business spending on equipment and software slowed sharply, growing at an only 3.0 percent rate after a brisk 11.8 percent pace in the fourth quarter.
Economists caution that it is too early to blame the cooling in business investment and other more recent signs of economic softness on the $85 billion in mandatory government spending cuts, known as the sequester, that began on March 1.

Homebuilding marked an eighth straight quarter of growth, though the pace moderated from the fourth quarter. Housing added to growth last year for the first time since 2005 and its recovery should help ensure the economy does not contract.
While export growth rebounded, it was outpaced by imports, resulting in a trade deficit that cut off half a percentage point from output.

Original CNCB article

Surprise! Insider Trading in DC Just Got Easier

Insider Trading in DC Just Got Easier

By: John Carney

Getty Images

While almost no one was looking, a law making it easier for congressional and top executive branch staffers to engage in corrupt trading was signed into law Monday.
The law is a modification of the Stop Trading on Congressional Knowledge (STOCK) Act. The modification was passed by unanimous consent by the House and the Senate last week with no debate or even discussion.

The STOCK Act, which became law just a year ago, was designed to discourage insider trading by members of Congress and top government officials. In addition to outlawing trading based on non-public information gleaned by government officials during the course of their public duties, the law required extensive disclosure of financial holdings by Congressional staffers and 28,000 senior executive branch employees.

The financial disclosures of these officials were to be posted in an online database open to the public.
The disclosure requirements were an important part of the law. They would have allowed researchers to detect abnormally successful trading activity by unelected senior government staffers—just as similar disclosure requirements for Congressmen and Senators had allowed scholars to produce evidence that suggested members of Congress were benefiting from non-public information.

Currently, although the reports of staff financial positions are officially part of the public record, they aren't readily available. Often they have to be requested from individual agencies using the names of the individuals about whom information is sought. The result is that the public is effectively blocked from learning the information disclosed in the reports.

The public disclosure requirement was arguably too lax to begin with. There's good reason to prohibit trading by senior government officials altogether. Many lawyers, journalists and Wall Streeters who come into possession of sensitive, confidential information as part of their professional lives are barred from any short term trading. Some are barred from owning individual securities at all, allowed to own nothing but index and mutual funds.


The provision of the Stock Act was a compromise in which government officials were required to disclose trades to the public in exchange for being able to trade in the first place. If disclosure proved too burdensome, government officials could simply adopt personal no-trading policies and avoid the cost of disclosing trades altogether.


The new law scraps the disclosure requirements for the staffers, leaving them in place only for members of Congress, Congressional candidates, and the President and Vice President.

People who lament our bitterly divided political situation might want to reflect what bipartisanship and inter-branch government agreement has been able to so quickly accomplish here.

See original article at CNBC.com