Small caps fall as growth slows
The Russell 2000 (NYSE: IWM) and the Dow Jones Industrial Average (INDU) are in the red following news that the economy has slowed.
At 10:19 a.m. ET, the small-cap index was down 0.74 points, or 0.10%, to 704.46. The Dow has lost 32.51 points, or 0.26%, to 12,447.79.
Gross domestic product grew at an annual rate of just 0.6% during the final three months of 2007, the U.S. Commerce Department reported before the start of trading. Analysts surveyed by Reuters had projected that fourth-quarter growth would be 1.2%. The economy added 4.9% in the third quarter.
The numbers are disappointing and tell us that the economic slowdown is more serious than was previously expected.
Economic growth for the entire 2007 was 2.2%, the slowest increase since 2002. The economy grew 2.9% in 2006.
Not surprisingly, the housing sector is largely to blame. Residential fixed investment declined by 24% in the fourth quarter, lowering GDP by more than 1%.
Worryingly, the government’s report also shows that consumer spending growth slowed, increasing 2% after posting a rise of 2.8% in the third quarter. With consumption comprising about 70% of gross domestic product, the economy needs Americans to spend money.
What little good news there was among the gloomy statistics came in the form of international trade. Fourth-quarter exports increased more than imports, but that’s at least partially due to the weak U.S. dollar, which makes exports cheaper and imports more expensive.
The data will be taken into account by the U.S. Federal Reserve, which concludes its two-day policy meeting this afternoon.
A decision will be announced at 2:15 p.m. ET and it’s widely expected that the Fed will lower its target federal funds rate from the current level of 3.5%.
Meanwhile, stocks small and large are falling, with the technology sector leading the way down. For example, ClickSoftware Technologies, Ltd. (Nasdaq: CKSW), a provider of workforce management solutions, reported earnings that disappointed analysts. The bears have chewed off more than 20% of the stock’s value.
