Source Pravda.Ru

US economy growth slows down while inflation increases

The US government wrote in its report on Friday that the country's economy grew slower than it was previously estimated in the first quarter, and inflation was higher.

PRAVDA.Ru write that two months ago, in April, the US economy was producing much better results. The growth of employment in the USA exceeded prognoses three times and left Euro no chance versus the US dollar.

The statistics of employment in the US economy was published on Friday and shocked the global financial markets. The published data surpassed all the prognoses made by economists and caused the US dollar exchange rate to grow.

The US Department of Labor reported that 308,000 new jobs in the US economy was created in March (except for agricultural sector). This exceeded the prognoses threefold and became the fastest growth of employment since April 2000. In February and January 46,000 and 159,000 Americans were employed, and this exceeded the prognoses as well. 230,000 new jobs were created in the service sector in March and 70,000 - in February. The number of jobs in the industrial sector did not change, and the analysts estimated this as a good sign, this is the first example in the last 44 months when this number did not drop.

The report of the US Department of Labor Impressed the currency exchange market players so much that Euro had no chance to withstand against the US dollar (in some minutes, the dollar exchange rate to Euro grew 1.9 percent. The growth of the dollar exchange rate started several minutes before the report publication was issued, and this could result from information leak. The growth of employment in the first spring month brought hope that the growth of the US economy will start being accompanied by the improvements in the US labor market. For a long time the labor market was stagnating.

The report by the Department of Labor decreased the risk of slowing down the growth of the US economy and gave the grounds to believe that the US Federal Reserve System can start conducting tough monetary policy in 2004. The interest rate can be increased in summer, there are prognoses of one more possible increase in November-December.

The prognoses predict favorable future for the US currency which could gain its former power because of high interest rate which can result in more earning on the investments in the US assets and growth of investors confidence about the perspectives of the US economy. Nevertheless, the Federal Reserve System is unlikely to increase the interest rate until the tendency of the employment growth becomes more stable and lasts some more months to come.

There are some details that can deteriorate the joy of investors and traders. Economists bear skeptic attitude to reducing the length of the working week (to 33.7 hours in March from 33.8 hours in February). This is incompatible with the idea of the improving labor market.

US stock exchange market reacted on the report by increasing DJI and S&P-500 by 0.9 percent and NASDAQ by 2.1 percent on April 2.

Nevertheless, the attitude to the US dollar is still negative. No more data that could surpass the published report, are expected. The statements of the representatives of the US Federal Reserve System may be of interest because they can reveal the future policy regarding interest rates. The activity in the financial markets will probably be decreased closer to Good Friday, a day off in the USA. The US dollar will probably remain within already set limits.

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