U.S. Economy Expanded at a 3.2% in First Quarter

The U.S. economy continued to grow in the first quarter. National output expanded at a seasonally adjusted annual rate of 3.2 percent last quarter, after growing 5.6 percent in the fourth quarter of 2009. This marked the third quarter in a row the economy showed strong economic growth. Economists are optimistic that the news may breed more confidence about the future turnaround.

Increased consumer spending played a significant role in the last quarter expansion. Consumer spending grew at 3.6 percent annual rate in the first part of the year, after growing at 1.6 percent annual rate in the previous three months.

SEC charges Goldman Sachs defrauded investors

The Securities and Exchange Commission (SEC) filed a case to sue Goldman Sachs and one of its employees for civil fraud, alleging they defrauded investors in selling a financial product tied to subprime mortgages, in 2007.

The SEC's allegation focuses on a mortgage securities transaction structured by Goldman, for which it allegedly earned $15 million in fees. Goldman allegedly helped hedge fund Paulson & Co., led by John Paulson, bet against those securities, and Paulson's firm made a profit of about $1 billion. Investors in the mortgage securities lost more than $1 billion, the SEC said.

The instrument in the S.E.C. case, called Abacus 2007-AC1, was one of 25 deals that Goldman created so the bank and select clients could bet against the housing market.

Economy added new jobs in March

Payrolls surge in March marked the beginning of job recovery as employers added 162,000 nonfarm jobs. This good news came from the Labor Department reported on Friday, after eight million jobs lost since the beginning of recession in December 2007. To absorb only new entrants into the labor market the economy needs to add more than 100,000 jobs a month.

While the unemployment rate held steady at 9.7 percent, economists saw signs in the latest report that the economy was poised to make steady progress.

Euro came under more pressure

The euro came under more pressure after Fitch, a credit-ratings agency, downgraded its assessment of Portugal’s debt.

Meanwhile, Greece got a little bit of good news as the European Central Bank signalled that it would keep its collateral standards relaxed beyond 2010, making Greek bonds less unattractive.

Revised GDP showed faster growth in Q4 2009

The economy grew at a faster pace than initially thought at the end of 2009. It grew at a 5.9% annual rate in Q4, up from the Commerce Department's initial reading of 5.7% and the fastest pace in six years.

The better-than-expected Q4 growth figure came as companies cut inventories at a slower pace, accounting for 3.9 percentage points of the 5.9% growth figure. Business investment also rose at a much faster pace than initially reported. However, consumer spending, which accounts for about 70% of economic activity, remained weak.

For all of 2009, the economy shrank 2.4%, the most since 1946

Meanwhile, sales of existing homes unexpectedly plunged 7.2% in January to an annual rate of 5.05 million units, a seven-month low, following December's record 16.2% plunge.

Fed raised discount rate to 0.75 percent

The Federal Reserve surprisingly raised its discount rate by a quarter of a percentage point, to 0.75 percent from 0.50 percent, effective Friday, after holding interest rates to extraordinary lows for more than a year. The Federal Reserve discount rate is the interest rate it charges on short-term loans made to banks as a backup source of financing.


It was a clear sign that the era of extraordinarily cheap money was coming slowly to an end. The central bank will try to drain from the financial system some of the money it created to keep banks and the economy afloat over the last two years. And at some point it will begin putting upward pressure on interest rates by raising its benchmark fed funds rate, the rate at which banks lend to each other overnight.

The Fed’s action represents a widening of the spread between the discount rate and the upper end of the target fed funds rate. The two rates typically move in lockstep, and were a percentage point apart before the crisis.

In an effort to encourage banks to come to it for funds to maintain their stability during the crisis, the Fed sought to make borrowing from the discount window more attractive than usual. The Fed reduced the spread between the fed funds rate and discount rate to half a percentage point in August 2007 and then to a quarter point in March 2008. When the target range for the fed funds rate was lowered to zero to 0.25 percent in December 2008, the discount rate dropped to 0.50 percent, its lowest level since World War II.

After the announcement stock futures fell in after-hours trading; yields on 10-year Treasury notes rose about seven basis points, or seven-hundredths of a percentage point, to 3.8 percent; and the dollar gained slightly.

Unemployment rate dipped to 9.7 percent as job loss slowed down

The U.S. economy lost 20,000 net jobs during January, while the unemployment rate dipped to 9.7 percent in the month, from 10 percent in December, the government reported Friday.

The slowing pace of job loss provided signs that the economy was recovering after the longest recession since the Great Depression.

While construction companies and state and local governments cut back, manufacturing added 11,000 jobs in January, the first time in three years.

Despite encouraging indications for the future, the government’s monthly snapshot of the labor market revealed that last year’s collapse was considerably more severe than previously recorded. The Labor Department revised previous data to show that the economy contained 1.36 million fewer jobs in December, a downward adjustment of roughly 1 percent. The revisions showed the economy lost 150,000 jobs in December, far more than the 85,000 initially reported.