Slow growth might be good growth

Ashley Milne-Tyte Jul 28, 2006


MARK AUSTIN THOMAS: US economic growth is slowing down. The government is out with the latest GDP or Gross Domestic Product figure. The GDP measures the value for all the goods and services our economy creates. This morning’s figure is 2.5 percent for the second quarter. That’s less than half the robust 5.6 percent first quarter figure. Whether that’s good news or bad news really just depends on who you talk to. Ashley Milne-Tyte explains.

ASHLEY MILNE-TYTE: The economy can’t go gangbusters forever. Nor should it, says economist Hugh Johnson.

HUGH JOHNSON: “You know when the economy is going at a very rapid pace it’s pretty easy for companies to raise their prices or pass through their higher costs of energy for example.”

Causing inflation to rise, and prompting the Fed to keep hiking interest rates. Johnson says an economic slowdown should be considered a boon.

JOHNSON: “Let’s call it the sweet spot for the economy, a pace between two and three percent and an inflation rate that is coming down.”

On the other hand, Global Insight economist Nigel Gault says there’s always the concern that a slowdown could be the start of a domino effect, so instead of the economy chugging along at a sustainable rate . . .

NIGEL GAULT:” . . .that maybe you fall well below that rate, and if you start falling well below that rate you’ll get nasty consequences including the unemployment rate starting to increase.”

Still, Gault doesn’t see a recession looming, just more sluggish growth through the end of the year.

In New York, I’m Ashley Milne-Tyte for Marketplace.

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