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US economic growth slows sharply


And the freaky January continues. The bad news just keeps on piling on this month with with the US economic growth skidding almost to a halt at 0.7% compared with the 2% growth in the previous quarter.
After the historic fed liftoff in December the data that has come out has continued to hint at weakness including the strong jobs data. The latest slowdown is down to a variety of factors such as crude crash, falling investments in the energy sector, lack of consumer demand, blizzards and business shutdowns.

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Spending on mining exploration, wells and shafts dropped by 38.7% compared with the 47% drop seen in Q3. Although a lesser drop it goes a long way to show how weak the underlying fundamentals are.
chart us gdp ends low
CNN Money
The ISM(Institute for Supply Management) index which gauges the manufacturing activity has fallen for 6 straight months and is officially in depression. The 48.2 in December with a reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent that it is generally declining.
A combination of strong dollar, weak global demand, falling oil, worries over China and the end of commodities super cycle has punished American manufacturers. The next ISM data release is on Feb 1 and expectations are gloomy. The downturn in manufacturing is especially concerning given that it makes up 10% of the economy.
Consumer spending is also a worry for the US economy.  The personal savings rate data released today inched up to 5.4% in Dec compared to 5.2% in November. When the savings rate increases it means that the consumers are less willing to spend signaling concerns about the state of the economy.
Overall, the US economy grew by 2.4% in 2015 in line with the 2014 growth rate. Economists and analysts have said that the new data throws question over the future rate hike by the Federal Reserve which held fire on Wednesday citing concerns over the global economy.
There is also a lot of conflicting data coming out of the US and this had added to the confusion over the state of the US economy. While the ISM is in contraction The Chicago Purchasing Managers Index came in at 55.6 the highest reading since last January.
Consumer spending rose 2.2% in the fourth quarter, compared with 3% in Q3, this has led analysts to believe that the consumer spending is still buoyant. A mild winter might was also seen as reason or the drop in consumer spending as a shorter winter leads to fall in sales of Winter clothing and other items.
The latest data comes amidst growing concerns over a looming recession, worries over the direction of China and the state of the global economy which is suffering from over supply and falling demand. JP Morgan estimates that there is a 20% chance of a recession this year.

Article by- Bhuvanesh Reddy

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