ProgramBusiness
 
  


Loading LiveCycle Banners.
  1. News Articles
  2. Related News Articles
  3. Comments
News Article Details

U.S. Economy Grew at Fastest Pace in Six Years Last Quarter

Source: NY Times

Back | A- | A+
 Email This     Print     Subscribe


Posted on 29 Jan 2010

The United States economy grew at its fastest pace in over six years at the end of 2009, but a sluggish job market is still souring economists on the sustainability of the recovery.

Gross domestic product expanded at an annual rate of 5.7 percent in the fourth quarter, after growing at an annualized rate of 2.2 percent in the previous quarter. Analysts had forecast annualized growth of 4.8 percent in the fourth quarter, and the better-than-expected result sent stocks higher.

The strong growth in the fourth quarter capped a year of the biggest contraction since 1946, when the country was still cooling off from World War II.

The Obama administration seized the news as an opportunity to push its proposed tax credit for companies that hire more employees, arguing that last quarter’s output growth sets the stage for encouraging companies to start investing in workers again.

Still, many economists caution against reading too much optimism into the numbers.

“It was an excellent report, but it’s not clear how sustainable this pace of growth is,” said John Ryding, chief economist at RDQ Economics. “We need numbers like this for the next two years, and I just don’t think we can achieve that.”

The biggest lift to economic activity came because businesses ran down their stockrooms at a much slower rate than they had earlier in the year. The change in inventories added 3.39 percentage points to the fourth-quarter change.

Slower inventory liquidation is not the most promising way to guarantee growth going forward, but economists are hoping that once companies become more confident about the recovery, they may ramp up production to refill stockroom shelves.

“What goes down wildly has to go up at a pretty good clip,” said Robert Barbera, chief economist at ITG.

Still, many economists worry more about trends in final sales to consumers and businesses.

Consumer spending grew at an annualized pace of 2 percent in the fourth quarter, after an increase of 2.8 percent in the third quarter. That is better than many had feared when the quarter began, considering that the cash-for-clunkers program was no longer around to help stimulate spending.

But consumer spending has still been disappointing to many economists, given the trends in previous recoveries. In the past, housing and consumption often helped drive growth in the wake of a recession.

Without the benefit of similarly bombastic inventory changes, many economists are expecting tepid growth in the quarters ahead. Ian Shepherdson, chief United States economist at High Frequency Economics, expects output to expand by a mere 1 or 2 percent, at an annualized rate, this quarter and next.

The biggest challenge going forward is the job market.

“Our focus must remain on getting Americans back to work,” Christina Romer, chairwoman of the President’s Council of Economic Advisers, said in a statement. “That G.D.P. rose strongly in the fourth quarter of last year while employment fell and the workweek increased only slightly emphasizes the need for policy actions designed to help spur private-sector job creation.”

On net, the economy lost 208,000 nonfarm payroll jobs last quarter, and the unemployment rate rose to 10 percent. As long as the labor market remains weak, consumers — whose purchases make up the bulk of economic output each quarter — will be reluctant to spend money. That means businesses will need to look for other sources of demand, like exports.

Perhaps the most promising trend, at least for job growth, to come out of Friday’s report was the pickup in equipment and software spending.

Businesses increased their investment in these areas at an annualized rate of 13.3 percent last quarter, compared with an increase of 1.5 percent in the third quarter.

“Businesses that are spending more on equipment and software are probably going to be hiring more as well,” said Nigel Gault, chief United States economist for IHS Global Insight. “If we see more hiring, that means we may see more consumer spending, too.”

Total government spending fell slightly, by an annualized rate of 0.1 percent, from the third quarter to the fourth quarter, largely thanks to declines in military spending and state and local government spending.

Federal nonmilitary spending rose at an annual rate of 8.1 percent last quarter, after rising 7 percent the previous quarter.

International trade over all increased last quarter, and exports grew nearly twice as fast as imports, helped along by a relatively weak dollar.

The G.D.P. number is a broad measure of the economy’s total output of goods and services. While it is, by definition, a backward-looking figure, analysts watch it to get a sense of where the country may be headed.

The number can be subject to major revisions, especially when the economy is at a turning point. The annual growth rate initially reported by the government for the third quarter of 2009 was 3.5 percent, but was later revised to less-impressive 2.2 percent.

The government’s final figure for last quarter’s G.D.P. will be released in March.


Comments

Post a Comment
If you are a Storefront / Tradingfloor user, click here to login.
Note: As a guest user, please fill out the form below to post a comment.
Post your comments here.
Name :
Email Address :
Captcha :
Comments :
Character left : 2000