Previous Optimism About the US Economy Disappears

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By Jacob Maslow

close up of Fifty Dollar BanknoteThere was a lot to get excited about in the third quarter of last year. According to economic data, the US economy grew by 5% in the third quarter. This is an amazing growth rate. Also compared to the economies of Japan and Europe, this is the breakout data set that helped spike the US dollar. In addition to the quantitative easing programs of the European central banks and the Bank of Japan, the 5% US economic growth rate was enough to propel the US dollar to multi-year highs against both the yen and the euro. It seemed that there was nothing stopping the US economy. It seemed that we were on this fast-moving train towards economic recovery.

Well, not so fast. In the fourth quarter, the US economy grew, but only by 2.2%. This is the final figure. It is not open for revision. This is it. This is going to be a problem because it heralds a lot of structural weakness. When you dig deeper into the numbers, the after-tax profits of corporations in the United States across the board fell by a 1.6% rate in the fourth quarter on average. This is crazy.

What is the culprit? It’s the strong US dollar. It seems that the US is in an economic spot where it is damned if it does and damned if it doesn’t. It is going to be very interesting how this slow growth rate environment will play out as far as US Federal Reserve interest rate policy goes. This is definitely a piece of evidence that doves on the Federal Reserve would use on any interest rate hikes in 2015. If anything, this shows that the US economy is not as solid as we thought. It remains to be seen how the economy would pan out now that there are more and more people working.

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