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Friday, July 28, 2006

Through TheFLY's Eyes: Gross Domestic Product


The Fly Was Correct: The Economy Is Slowing Down

US GDP data slowed materially for 2Q06, declining to 2.5%, below the 3.5% trendline of the last few years. We have been blogging for a while that the economy is slowing down and the Fed should stop raising rates.

Regarding inflation, the CPI price deflator, excluding energy prices, was up 2.9%. A little higher than the Fed would like. However, from looking at the results of most companies in the second quarter, revenues were light implying pricing power is deteriorating.

Weaker pricing power and lower GDP growth all point to a Fed that should be done.


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