US Economy Growth Sputters But Stocks Continue on Record Rally

May 30, 2014 Share Print 0

The US economy is contracting for the first time since 2011. The growth rate for gross domestic product (GDP) in the first three months of the year was revised down from an annualised pace of 0.1% to a contraction of 1.0%.

Yet, the US benchmark stock index – the S&P 500 – rose to a record high, climbing 0.5% to close at 1,920 on the day.

The prospect of the world’s largest economy contracting is worrying, but this is a negative quarter caused by short-term factors.

The contraction is largely due to a downward revision to private firms’ inventories.

Besides, the economy wasn’t performing well in any case. The first estimate of GDP was stagnant due to bad weather. The revision to inventories just pushed it into negative territory which the economy was already on the cusp of.

Freezing conditions closed factories and construction sites as well as affected stores.

Investment dropped by 1.6% – spending on buildings, housing, equipment all decreased – but spending on intellectual property rose. The latter isn’t affected to the same extent by weather as the others.

There was also a negative impact on the production of exports, which fell by 6%. Imports rose by 0.7% as consumers were still buying.

via BBC

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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.