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Safe Money Report

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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