Doom and Gloom.

[CCTAU 3,350]

That is all we hear everyday. But then a report always comes out saying that things have been good. But nobody talks about it. They only talk about the impending doom and gloom. What is the real truth?

Economy Has Strong Showing in Summer

Thursday November 29, 9:12 am ET

By Jeannine Aversa, AP Economics Writer

Economy Grows in Summer at Best Pace in 4 Years; Performance Not Expected to Continue

WASHINGTON (AP) -- The economy barreled ahead in the summer, growing at a 4.9 percent pace. The performance was the strongest in four years, but isn't expected to last through the current quarter amid the continuing housing slump and credit crunch.

The Commerce Department's new reading of the gross domestic product from July through September, released Thursday, was even better than the government's initial estimate of a brisk 3.9 percent growth rate for period. Stronger U.S. exports to overseas buyers and more inventory investment by businesses were the main reasons for the improvement.

The big pickup in GDP, though, didn't change the picture forming in the current October-to-December quarter. And that scenario is somewhat grim, with indications the economy will lose considerable steam. Growth is expected to slow to a pace of just 1.5 percent or less in the final three months of this year.

GDP is the value of all goods and services produced within the United States and is the best measure of the country's economic health.

The upgraded GDP figure for the third quarter matched economists' forecasts. The strong showing suggested that the economy was resilient even as the housing market plunged deeper into turmoil and credit problems intensified. Federal Reserve officials and other economists -- looking at fresher barometers of economic activity -- have warned that the economy is in for a rough patch.

In another report, the number of new people signing up for jobless benefits last week jumped sharply, suggesting that employment conditions are softening as national economic activity slows. The Labor Department reported that new applications filed for unemployment insurance mushroomed by a seasonally adjusted 23,000 to 352,000. It was the highest level since Feb. 10.

There have been mounting signs in recent weeks that the housing and credit problems are affecting the behavior of consumers and businesses alike.

Spending by consumers and businesses is the lifeblood of the country's economic activity. The big worry for economists is that consumers and businesses will cut back on spending and investing, dealing a blow to economic growth. The odds of a recession have grown this year. Still, Fed officials and many other economists remain hopeful the country will weather the financial storm without falling into recession.

The Fed has sliced interest rates twice this year -- in September and late October -- to keep the housing collapse and credit crunch from throwing the economy into a recession. Fed policymakers at the October meeting signaled that further rate reductions may not be needed. Since then, however, financial markets have suffered through another period of turmoil. The housing slump has deepened, consumer confidence has sunk and shoppers are flashing signals of caution.

Against that backdrop, investors and some economists believe the Fed might lower rates when they met on Dec. 11.

Even with the remarkable GDP showing in the third quarter, the housing situation grew more bleak.

Builders slashed investment in housing projects by 19.7 percent, on an annualized basis. It marked the biggest cut in a year. Credit problems have made it harder for would-be home buyers to finance a home, deepening the housing slump. The inventory of unsold homes continues to pile up and builders continue to cut back. The industry's problems are expected to drag on well into next year, acting as a weight on national economic activity.

Businesses largely carried the economy in the third quarter. Sales of U.S. exports abroad powered growth. Those sales were aided by the falling value of the U.S. dollar, which make U.S. goods cheaper to buy on foreign markets. Exports grew by 18.9 percent, on an annualized basis, in the third quarter. That was the biggest increase in four years.

Inventory investment by businesses also added to GDP growth as did spending on equipment and software and construction of new plants, office buildings and other commercial construction.

The huge losses reported by financial companies due to the mortgage meltdown took their toll on corporate profits. One measure showed that after-tax profits were flat in the third quarter after rising by 5.2 percent in the second quarter.

Consumers were somewhat subdued in the third quarter. Their spending grew at a 2.7 percent pace, up from a weak 1.4 percent growth rate in the second quarter but still considered somewhat lukewarm. Analysts expect consumers turned cautious in the current October-to-December period, a factor in forecasts of slower overall economic growth. Post-Thanksgiving retail sales were promising, however.

A separate GDP-related gauge of inflation showed that "core" prices -- excluding food and energy -- rose at a rate of 1.8 percent. That was the same as previously estimated but up from a 1.4 percent rate in second quarter. Still the inflation figure was within the Fed's comfort zone.

Oil prices, which have been marching higher, have eased in recent days and are now hovering at above $90 a barrel. High energy prices can crimp spending by people and businesses on other things, putting another damper on economic growth. So far more expensive energy hasn't forced a widespread boost in the prices of lots of goods and services, which would spread inflation through the economy. But Fed officials -- ever vigilant against inflation dangers -- have said they'll keep a watchful eye on the situation.

The fallout in the housing and credit markets are weighing on President Bush.

The public is giving Bush low marks for his handling of the economy. Just 32 percent -- a record low-- approve of his economic stewardship, according to a recent AP-Ipsos poll.LINK

[otterinbham 0]

That's nice. But the economy is on fragile ground right now. Yes, it could rebound nicely. But if the credit market goes into a major correction then EVERYTHING goes south. Hence the ongoing discussion.

Now what's sustaining the economy is the export boom caused by the lower dollar and capital expenditures. However, if the dollar falls much further, then you'll start witnessing a lot of foreigners bailing out of domestic investments. What's more, if there's a credit crunch, all that capital spending comes to a screeching halt.

So I wouldn't be quite so triumphant about this. Personally, I think the economy will get through the next two quarters dinged up, but still moving forward. But we are skating on the edge, my friend.

[CCTAU 3,350]

That's nice. But the economy is on fragile ground right now. Yes, it could rebound nicely. But if the credit market goes into a major correction then EVERYTHING goes south. Hence the ongoing discussion.

Now what's sustaining the economy is the export boom caused by the lower dollar and capital expenditures. However, if the dollar falls much further, then you'll start witnessing a lot of foreigners bailing out of domestic investments. What's more, if there's a credit crunch, all that capital spending comes to a screeching halt.

So I wouldn't be quite so triumphant about this. Personally, I think the economy will get through the next two quarters dinged up, but still moving forward. But we are skating on the edge, my friend.

According to many, we have been skating on the edge for 4 years. We hear doom and gloom every quarter, then at the end of every quarter, we get good news about the economy. I guess if you keep predicting doom and gloom and it finally happens, you'll be right. And for many, "I told you so" is all they are trying to get at.

I agree the economy is tentative, but we have been hearing this same doom and gloom for so long. At this point do people really hear it any more? Or is just like crying wolf?

[otterinbham 0]

That's nice. But the economy is on fragile ground right now. Yes, it could rebound nicely. But if the credit market goes into a major correction then EVERYTHING goes south. Hence the ongoing discussion.

Now what's sustaining the economy is the export boom caused by the lower dollar and capital expenditures. However, if the dollar falls much further, then you'll start witnessing a lot of foreigners bailing out of domestic investments. What's more, if there's a credit crunch, all that capital spending comes to a screeching halt.

So I wouldn't be quite so triumphant about this. Personally, I think the economy will get through the next two quarters dinged up, but still moving forward. But we are skating on the edge, my friend.

According to many, we have been skating on the edge for 4 years. We hear doom and gloom every quarter, then at the end of every quarter, we get good news about the economy. I guess if you keep predicting doom and gloom and it finally happens, you'll be right. And for many, "I told you so" is all they are trying to get at.

I agree the economy is tentative, but we have been hearing this same doom and gloom for so long. At this point do people really hear it any more? Or is just like crying wolf?

Oh, I'm no doom and gloomer. But when I walk into a roomful of high-level bankers the way I did two weeks ago in a planning meeting and watch these guys shake their heads and basically say that they hope the banking industry in the Northeast and the Pacific Coast doesn't collapse, then you really have to worry.

[CircleDrill 178]

I'm not an economist or a banker, so I can only speak in layman's terms. But it seems to me that the middle class in this country has a lifestyle that is better than ever, yet I hear Democrats talking about how we are all so poor.

My experience is not consistent with that statement.

[channonc 466]

I'm not an economist or a banker, so I can only speak in layman's terms. But it seems to me that the middle class in this country has a lifestyle that is better than ever, yet I hear Democrats talking about how we are all so poor.

My experience is not consistent with that statement.

How much of that lifestyle is paid in cash vs. how much is paid in credit cards?

In urban areas, the middle class is actually disappearing. Housing costs, gas prices, and now the increase of grocery prices has made it harder on the middle class.

[Tigermike 3,055]

I'm not an economist or a banker, so I can only speak in layman's terms. But it seems to me that the middle class in this country has a lifestyle that is better than ever, yet I hear Democrats talking about how we are all so poor.

My experience is not consistent with that statement.

How much of that lifestyle is paid in cash vs. how much is paid in credit cards?

In urban areas, the middle class is actually disappearing. Housing costs, gas prices, and now the increase of grocery prices has made it harder on the middle class.

But the party of the poor is ready to change things aren't they.

[otterinbham 0]

How this morphed into a rich vs poor debate is beyond me, you bunch of agenda-driven freaks.

However, the "rich get richer, poor get poorer" canard is not based on statistical fact.

The IRS did an interesting ten-year survey on household incomes by tracking thousands of individual tax returns. What did they find? Those that began the survey in the lowest 20% of the population saw their incomes rise over 90% by the end of the ten-year period. Meanwhile, those in the top 20% only saw a 26% rise over the same period of time.

Getting back to the original point of the thread. The economy is continuing to move upwards, but the footing is getting more treacherous by the day. It's not a Republican vs. Democrat argument. It's just the cyclical nature of economies, not to mention what appears to have been an overcompensation by the Federal Reserve in terms of money supply starting in about 2005-2006.

[CCTAU 3,350]

My original post had nothing to do with politics as much as it did with the media and the folks that are predicting the economy. Are these folks predominately dimocrat? Not sure, but it does seem that this happens quarterly.

Who is right? Is anyone right? Like Circle said, right now is a good time to be in the middle. As long as you are living within your means, you can have a good life. But if you are not in the middle but want to be, that does not mean you deserve to be. Some in this country have the notion that if everyone is not living high on the hog, then the government should do something about it. And the media reports it as such. As if it's the governments fault that we are not all rich. And in that same vein, Bush's fault.

[Auburn85 432]

Well, credit card debt is out of control (i'll refrain from using the meida's fav word "crisis")

All that debt counted as money spent.

Our country is really reflecting the way our government currently spends.

I agree our country's economic state is fragile. It's not because of high gas prices. Perhaps it's a touch of the ever increasing cost of health coverage.

Our dow jones is very bipolar at the moment. Consistantly having 300 point losses and gains. I will however buy into more emphasis on 300 point losses over 300 point gains in the media.

I too feel that with all the so called "doom and gloom" news on the economy, the speculation does play a factor. Heck, just imagine what a barrel of oil would cost if speculation wasn't factored in.

Our government spending easily surpasses any other presidential administration. This was all the while taxes were cut. Revenues greatly increased.

We're always considered a spending nation, but now we are a nation that doesn't spend within our means. To me, that's the biggie.

How many people could really afford these sub- prime mortgages before the mess hit the fan?

And to continue on this pointless rambling... if our economy is fragile and to some, a huge recession is imminant, then why are we hearing of an even bigger expansion of government in the next presidential election? via higher taxes, via socialized medicine. We have such a high trade deficit and a high national debt. And here some are talking of even bigger government and more spending. We are our own worst enemy.

how will higher taxation help our economy during a recession?