Slow Growing U.S. GDP Unchanged Sending Markets and Dollar Lower

By Jennifer Yousfi
Managing Editor

The preliminary gross domestic product (GDP) figure for the fourth quarter of 2007 was 0.6%, unchanged from the advance figure released last month, the Commerce Board announced yesterday (Thursday).

Analysts had expected a slight upward revision in GDP to 0.7% and the confirmed lower figure sent markets tumbling.
 
At yesterday's New York close, the three major U.S. stock indices had all posted losses. The blue-chip Dow Jones Industrial Average Index had a decline of 112.10 points (-0.88%), to trade at 12,582.18. The tech-laden Nasdaq Composite Index slipped 22.21 points (-0.94%), to reach 2,331.57. And the broader Standard & Poor's 500 Index dropped 12.34 points (-0.89%), to settle at 1,367.68.

In his second day of Congressional testimony, Federal Reserve Chairman Ben S. Bernanke acknowledged the difficulties the economy is facing.

"We are facing a situation where we have simultaneously a slowdown in the economy, stress in financial markets, and inflation pressures coming from these commodity prices abroad," Bernanke said.

However, the Fed Chief was quick to put stagflation concerns to rest as he does not feel "we are anywhere near the situation that prevailed in the 1970s."

"I don't anticipate stagflation," he said.

"We have to make our policy trying to balance these different risks in a way that can get the best possible outcome for the American economy," Bernanke said. "At the moment, I think the greater risks are to the downside, that is to growth and to financial markets."

The prospect of further rate cuts weren't enough to bolster the markets in the face of a faltering fourth quarter GDP, but it was enough to send the greenback to a new record low versus the euro. One euro is now worth $1.52 [conversely, one dollar is now worth 0.657 euro].

"There is very real concern that there is a possibility of a dollar crisis," said Paul Chertkow, head of global currency research at Bank of Tokyo Mitsubishi UFJ Ltd. (MTU) in London, in an interview with Bloomberg Radio. "I don't use the word crisis lightly; we are in uncharted territory for the dollar, especially against the euro."

News and Related Story Links:

• Bloomberg:
  Dollar Falls to Record; Jobless Claims Rise, GDP Lags Forecast

• Bloomberg:
  U.S. Stocks Fall After GDP Trails Forecast, Jobless Claims Rise

• MarketWatch:
  U.S. is not falling into stagflation: Bernanke

• MarketWatch:
  Stocks drop on weak GDP data, Fed's inflation talk

• Reuters:
  Stock Market News & Quotes

• Money Morning:
  Growth – Not Inflation – Remains the Fed's Main Concern