Transcripts

The Dow Reaches Another Record

SUSIE GHARIB: Wall Street ended the week in record fashion. The Dow stands at an all-time high of 13,120, after rising 15 points today -- its 19th gain in the past 21 sessions. Even disappointing news on the economy wasn't enough to derail the positive market momentum. The government said today that the U.S. economy slowed even more than economists were expecting in the first quarter of this year, to its slowest pace since 2003. Scott Gurvey reports.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The economy was hit with a double whammy in the first quarter. The weak housing market combined with higher energy prices to produce the slowest rate of growth in the last four years. The Commerce Department reported the gross domestic product gained only 1.3 percent. That was lower than expected and compares to a rate of 2.5 percent for the fourth quarter of last year. The quarter also saw an increase in the trade deficit. That meant once again, that consumer spending made the difference and kept the expansion breathing. But that demand put pressure on prices and brought troubling news on inflation. The report showed the GDP price index, its inflation indicator, gained 4 percent, the most in 16 years. The data led John Ryding, chief U.S. economist at Bear Stearns, to raise the possibility of stagflation, although he says we are not at that point yet.

JOHN RYDING, CHIEF US ECONOMIST, BEAR STEARNS: I think what there is danger of is growth remaining slower than we'd like to see and inflation being higher. What I do expect, as the housing market begins to stabilize later in the year and as we get a rebound from the inventory correction we've gone through, that we will see stronger growth numbers in the second half of 2007, in the ballpark of 2.5 to 3 percent.

GURVEY: The report puts additional pressure on the Federal Reserve, which is caught between those pushing for lower interest rates to stimulate growth and others calling for higher rates to prevent inflation. Steve Wieting, senior economist at Citi, says, for now, the Fed will hold rates steady.

STEVEN WIETING, SR. ECONOMIST, CITI: If we're going to get a bounce- back in productivity and we start generating slack in labor markets and see reduced inflation, we could be moving in the direction of a bit of accommodation from the Fed. But its not something that just on the headline from today's GDP report, that I would cause any major revisions to the view.

GURVEY: The next Fed meeting to review monetary policy will be on May 9 and the policymakers will also have the critical employment report for April to review at that time. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.