NEWS AND COMMENTARY
July
27, 2001
Why
So Gloomy?
Question:
Everything I read in your Safe Money Report seems to be about economic
doom and gloom. Do you have any optimism about the US economy?
Answer:
We wish we had better news to bring you, but we expect this slowdown
to continue. Just today, the government reported that economic growth
this spring was the weakest it's been in eight years.
According
to the Commerce Department, the gross domestic product rose a pitiful
0.7% in the second quarter. GDP is the broadest measure of the health
of the US economy. The government attributed the weak GDP growth
to cuts in business spending and excess inventory on factory shelves.
In fact, fixed investments by business plunged 13.6% between April
and June -- the biggest decline in 19 years.
Although
consumer spending -- which contributes to two-thirds of the economy
-- has propped up the GDP and kept it from falling to negative numbers,
we expect this to change soon. Between increasing unemployment and
a decline in the value of stock shares, the net worth of American
households has fallen by an amazing $3.4 trillion. And this is in
addition to the mushrooming debt carried by the average American.
All
this is taking its toll on consumer confidence. As reported by the
University of Michigan today, the July consumer sentiment index
fell to 92.4 from 92.6 in June, and the current conditions index
--which measures how consumers feel about their current financial
condition -- plunged to 98.6 from 101.6 in June.
It's
only a matter of time before consumers knock the legs out from under
the already-teetering economy.
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