US GDP shrinks 3.8% the most in 26 years

Consumer spending fell 3.5% and mounting job losses make the final GDP number look more grim going forward. Since real consumption was down, inventories accumulated and for the moment seem to mask the true GDP figure. Demand across the board has been reduced and larger inventories mean lower sales from businesses. Analysts expected a 5.5% drop, which did not materialize thanks to shipments of good, even as unsold inventory accumulates.

Exports which had been one of the strong points for the US Economy contracted even with the help of a weaker USD, as a global recession is taking place and foreign markets reduce their imports. The stimulus package that was approved by congress is seen by many as a measure against mounting layoffs and a good jump start to the American consumer confidence.

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza