Transcripts

The Economy Causes A Seismic Shift On Wall Street

SUSIE GHARIB: The Dow broke its four-day winning streak on news the economy slowed to a crawl. The blue chips fell 73 points and the NASDAQ lost 28. Investors became concerned about the outlook for corporate profits after the government reported today that third quarter GDP dipped to 1.6 percent, much lower than expected. Suzanne Pratt looks at whether the slowdown will continue.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The slumping housing market was largely responsible for the slowdown in third quarter economic growth. Gross domestic product, which measures economic activity within the U.S., grew at an annual rate of 1.6 percent in the third quarter. That was down sharply from 2.6 percent in the second. Residential construction fell more than 17 percent in the quarter, the largest decline in 15 years.

JOHN RYDING, CHIEF U.S. ECONOMIST, BEAR STEARNS: That took off a little more than a percentage point from growth, about what Bernanke had advertised, actually, in a speech almost a month ago.

PRATT: The widening trade deficit also contributed to weak third quarter growth. But the consumer sector held up well, with consumer spending accelerating in the period. As a result, most economists do not believe the soft GDP data suggests a recession is coming. Many believe the tepid growth is only temporary.

RYDING: I think there are signs the housing market is beginning to stabilize and once that adjustment is behind us, I think the economy is going to pick back up to a growth rate close to 3 percent.

PRATT: For financial markets, weak third quarter growth suggests the Federal Reserve is likely to remain on the sidelines for the foreseeable future.

BRUCE KASMAN, CHIEF U.S. ECONOMIST, JP MORGAN: I think the Federal Reserve has expected this kind of a number and in fact in some sense, it's welcoming it because it does have an underlying concern about inflation. So, I think in response to this result, the Fed is simply going to stay on hold here and it'll wait to see what the economy does over the next six to nine months before it takes any action in either direction.

PRATT: An additional piece of good news in today's data was that the inflation reading in the GDP report fell in the third quarter. Economists say that's one more reason why the Fed is likely to remain on hold. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.