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GDP growth slows in first quarter

Marketplace Staff Apr 28, 2011
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GDP growth slows in first quarter

Marketplace Staff Apr 28, 2011
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JEREMY HOBSON: Now let’s get to this morning’s GDP number — 1.8 percent growth in the first three months of the year. And compare that to a 3.1 percent growth rate that in the previous quarter.

Diane Swonk is chief economist with Mesirow Financial. She’s with us now live from Chicago as she is each Thursday. Good morning Diane.

DIANE SWONK: Good morning.

HOBSON: Well it sure seems to me like we’re moving in the wrong direction here.

SWONK: Well certainly the dirt is in the details. And although we all expected to slow down in the headline number we didn’t expect some of the weakness that we saw in the figure this month. Consumer spending slowed from the fourth quarter — expected that. Gas prices were higher. But still spending a little bit out there. But on a more negative note, government spending absolutely collapsed. And part of that is less transitory than one would like. We saw defense spending collapse. And we know that’s going to come back. We’re fighting multiple fronts and moors in multiple countries. But beyond that, the spending by the federal government on fiscal stimulus is playing out, and at the state and local level. We’ve seen all of those headlines, we’ve seen the backlash. The cuts are deep and we’re beginning to feel them. And those aren’t likely to go away any time soon. That’s a real headwind for the U.S. economy going forward.

HOBSON: Diane what can we do to turn this around?

SWONK: Well, the key is what the cash is on corporate balance sheets. We still have an enormous amount of cash on corporate balance sheets that’s yet to be redeployed. And what we need is high enough confidence among those corporations and we are now seeing many institutional investors — pensioners — getting on their boards and saying, “Give it back to us in a dividend, or redeploy it.” Reemploy, or reinvest. All those things would help the U.S. economy to pick up a little bit, but let’s face it — we’re coming out of a very deep hole and there is no easy out otherwise we would’ve shot that silver bullet.

HOBSON: Diane Swonk, chief economist with Mesirow Financial, thanks so much.

SWONK: Thank you.

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