Economic Growth Outpaces Expectations

(CBS/AP)  The U.S. economy's faster-than-expected growth at the end of last year, powered by companies replenishing stockpiles, is likely to weaken as consumers keep a lid on spending.

The 5.7 percent annual growth rate in the fourth quarter was the fastest pace since 2003. It marked two straight quarters of growth after four quarters of decline. Growth exceeded expectations mainly because business spending on equipment and software jumped much more than forecast.

Still, economists expect growth to slow this year as companies finish restocking inventories and as government stimulus efforts fade. Many estimate the nation's gross domestic product will grow 2.5 percent to 3 percent in the current quarter and about 2.5 percent or less for the full year.

That won't be fast enough to significantly reduce the unemployment rate, now 10 percent. Most analysts expect the rate to keep rising for several months and remain close to 10 percent through the end of the year.

High unemployment and stagnant wage growth will likely keep consumers cautious about spending. Wages and benefits paid to U.S. workers posted a scant gain in the fourth quarter. And for all of last year, workers' compensation rose by the smallest amount on records going back more than a quarter-century.

The economic recovery could falter if consumers, who account for 70 percent of economic activity, lack the income to ramp up spending.

"That's why there's so much hand-wringing right now," said Brian Bethune, chief U.S. financial economist for IHS Global Insight. "Can the economy really sustain this? That's the big question mark sitting out there."

With hiring still weak, President Barack Obama has stepped up his focus on job creation. On Friday, he said his administration has "stopped the flood of job losses," but much more needs to be done to help the millions of people still out of work.

Appearing Friday at Chesapeake Machine Co. in Baltimore, Mr. Obama put in a pitch for legislation he is seeking from Congress to provide tax breaks for small businesses that hire additional workers.

"It's time to put Americans back to work," Mr. Obama said, while acknowledging that "we've got a long way to go to make up for the millions of jobs lost this recession."

He said the economic growth in the last quarter an encouraging development. The president said he would take unpopular steps, if necessary, to get the economy going again.

About 60 percent of the fourth quarter's growth resulted from a sharp slowdown in the reduction of inventories as firms began to rebuild stockpiles depleted by the recession.

Changes to inventories added 3.4 percentage points to the fourth-quarter growth, the Commerce Department said in its report Friday. Excluding inventories, the economy would have grown at a 2.2 percent clip, the government said. That's an improvement from 1.5 percent in the third quarter.

Consumer spending rose 2 percent, down from a 2.8 percent rise in the third quarter. It added 1.4 percentage points to GDP growth.

A steep increase in exports also helped boost growth last quarter. The shipment of goods overseas rose 18.1 percent, far outpacing a 10.5 percent rise in imports. Net exports added 0.5 percentage point to GDP.

Government spending was actually a slight drag on growth in the fourth quarter: A small increase in federal spending was outweighed by a drop in state and local spending.

A drop in defense spending accounted for the decline. Federal government spending is likely to pick up and add to growth in the first quarter, Bethune said.

Business spending will likely boost economic growth for several quarters, Bethune said, though not likely enough to make up for sluggish consumer spending. Many companies are upgrading computers, cell phones and machinery as their equipment needs to be replaced just to maintain current levels of production.

In addition, many businesses have healthy balance sheets and don't need to pay off the large debts that households are struggling with, Bethune added.

For now, the growing economy is benefiting companies up and down the supply chain. Ford Motor Co. this week reported higher fourth-quarter sales and its first annual profit in four years, as it recovers from the devastating downturn the auto industry.

Ford's "recent success has benefited us," said Tom Schumann, general manager of EC Kitzel & Sons Inc., a small cutting tool fabricator based in Cleveland, Ohio.

The company, which has 30 employees, bought a new machine tool in December and hired a new worker to run it, the company's first hire since last spring. Still, many of the company's suppliers are struggling.

"I'm not totally convinced we're out of the woods yet," Schumann said, referring to the economy.

Friday's report is the first of the government's three estimates of gross domestic product and is likely to be revised. The government initially estimated third quarter growth was 3.5 percent, which was later revised down to 2.2 percent. The next estimate will be released Feb. 26.

The report provided an upbeat end to an otherwise dismal year: The U.S. economy declined 2.4 percent in 2009, the largest drop since 1946. That's the first annual decline since 1991.

[rightbehind]

Of course the stimulus is working. The economy could be completely repaired through stimulus. It also leads to inflation. The rich don't like that. It makes what they've hoarded worth less. They like it when they can feed on desperation. I say print some more stimulus.

[rfp1959]

We are in the worst economic disaster since the great depression. Did anyone really think things would turn around in 1 year? The recession of 2001 lasted about 6 months and was relatively mild. It took 18 months for jobs to rebound. Jobs are always the last element of an economy to recover due to the stinginess of executives who never seem to lose any of their pay and bonuses. It will take years to undue the damage done by mindless wall street and corporate greed and deregulation of the financial markets.

[erb0087]

"President Obama is like a pilot who took the controls of the plane in mid-flight after the engines fell out. It's obvious that he didn't cause the problem. But the passengers are going to focus on the fact that the plane was still airborne before he took over, and now, he's crash-landing in the ocean.

That's Obama's problem in the debate over the economy. His arguments are true. The trouble is, they don't feel true, and they feel less and less true as time goes by.

Republicans focus relentlessly on the simple fact that the economy is in worse shape now than it was before Obama took office. The trajectory may have improved, but the level has worsened--more people are out of work now than on January 20 [2009].

The Obama administration predicted in January that, if its stimulus package passed, unemployment would stay below 8 percent, yet it has crossed 10 percent. You have probably heard this statistic if you have heard any Republican in elected or unelected office open his mouth at any point over the last half-dozen months. The implication of this statistic--sometimes made explicit--is that the stimulus failed to alleviate, or even caused, rising unemployment.

The more plausible interpretation is that the Obama administration's January forecast, along with most private forecasts at the time, underestimated the depth of the recession."

- Jonathan Chait
December 23, 2009

http://www.tnr.com/article/politics/screw-job

[patocc123]

The problem is that he tells people that he is going to land it safely at the next airport. Then he falls asleep at the wheel and flies past the airport after telling everyong to buckle up for the landing.

Yes the last pilot(president) and his flight crew( congress - Both parties) messed up but the choices this pilot is making are not helping the nervous passengers nor is he doing anything to contact the tower that an emergency landing is coming.

All people want right now is to get off the plane alive and finger pointing while piloting the plane does nothing.

[patocc123]

My point is to quit playing the blame game. If anything goes wrong or takes longer than expected the first thing people say is that its not his fault. People have to take accountability for thier actions and quit blaming everyone else for thier failures.

1/4 od his first term is complete with little to nothing to show from it but finger pointing.

Plus guess what, the republicans and democrats both suck but this constant deflection of responsibility has to go. Yes the republicans are wrong for doing the same thing to the democrats but the democrats are in power now and thus bear the responsibilities.

If things are still not very good from 1 year from now will you still be blaming the republicans . . I betcha you will. If the democrats controlled everything for the next 11 years it will still be the republcians fault from most of the blind followers on here.

Democrats wanted the job and power and now they must face the wraith for thier inability to follow up on the promises they made.

[thinking-hurts]

Xerox 2,500 Layoff
Walmart 11,500 Gone
Stein-Mart 35 stores closed
J.C. Penny Closing 75 Stores
Hot Topic Closing 200 Stores
Dillards Closing 45 Stores
Barnes and Noble Closing 100 Stores
A&F closing 179 Stores
Zales Closing 200 Stores
Verizon 16,000 Layoff
Macy's 1,500 Layoff
Caterpillar sales Off 65%

Looks like green shoots to me.

By the way, the 5.7% number is annualized. That is what the impact would be over a year of this type of increase. The real number is more like 1.45% and that is dubious since the Q3-09 number was reduced 40% from its initial report of 3.8% or so.

Looks like Obama's political increase is as much smoke and mirrors as the economy improving.

[curse914]

I agree with you, but I wonder where you stand ideologically on Free Trade and Deregulation?

Are you a supply sider?

[mimi5952]

I also agree with you.

[czhnder]

Isn't it wonderful?! Lost jobs are still above 10 percent and wages of those still working are frozen, but rejoice that the economy is growing again! Obama is working his miracles!!! Of course the government employee list is growing while private sector jobs continue in decline--GREAT NEWS, isn't it?

[curse914]

Reagan started the counting of the Military as employed and I doubt it has changed since then. Deception is the name of the game. If you control the Narrative, you control The People (unwashed mass as the elite would refer to us). Thus you have the Supreme Court ruling give "Free Speech" to those with most cash; they will control the Narrative.

The irony is the moneyed that are in charge have not learned from history, if you do not share some of "your" prosperity with those who helped you aquire it, you are asking for a coup. I expect no less from a the sociopathic Uber Class.

[mimi5952]

The real unemployment numbers are around 22%. Scary!

[fedup12]

"Economic Growth Outpaces Expectations"

Cmon say it aint so.... Cant be true can it. Darn libs at CBS are messing with the data again. This news will put ol Rush in a twist.

I better go to BBC and get the real scoop.

[curse914]

I generally agree with your posts, "economic recovery" is fictitious.

We had an economy based on manufacturing that peaked in the 1960's with the single wage earner. But we have been sold "Free Trade" will lift all boats when it is really just designed to return America to the late 1800's Gilded Age. Since we have to "compete with the world" as Cantor put it in his rebuttal to Obama's SOTU address, we have to work at wages set by the "Globe". And since this Market/Globe is in the either, there is no regulation, that was the goal from the onset. The same goes for a "Global government", it also would reside in the either outside of responsibility for "global citizens".

Unfettered Capitalism is DOA, a Service Based Economy is DOA and Free Trade is not Free Trade when you have compete with Dictatorships.

[curse914]

by brian1920 January 29, 2010 9:36 AM EST
I am very suspicious of these numbers. Where are the jobs? Let the experts analyze this before making a judgment. Something doesn't smell right.

--------------------------------

That is because you are not a student of history or anything based on most of your comments.

Reagan started the unemployment monkeying and every administration since has added there own "tweaks" which means we are not seeing the real picture and never will.

The same "tweaking" has been happening with inflation indicators and other economic data. Which just servers to mask our economic decline. And the rise of disproportionate wealth distribution that looks suspiciously like the wealth distribution of the Gilded Age. Look up the Gilded Age, Brian, it is what Karl Rove (studied in higher education) and a slew of other elites have been trying to set out country back to. Monopolies and robber barons dominated the landscape and there were no labor or product safety laws.

Enjoy your future in the Oligarchy our nation has become.

[DaVicar8]

"Strongest Performance Since 2003"???

Hmm...
WHO was President in 2003?

[fedup12]

LOL Yup Bush was an Economic, Foreign Policy master.

Look at the shape of the country when he left office after a long 8 years.

[fedup12]

Now that Bush is retired if he goes fishing is he a master baiter?

[pws54]

Nothing mentioned says the economy is fixed, just that it is heading in the right direction. It will take years to fix this mess, if Congress doesn't screw it up again. Yes, our government does lie about the numbers. The Bush Administration (Dept. of Labor) were always posting numbers that were mis-leading. Like the number of jobless claims dropping, which never accounted for people who dropped off after 39 weeks and still didn't have a job.

[curse914]

That sort of unemployment "creativity" started under Reagan.

The reality is every administration since start of our 30 year faux economic "growth" has been monkeying with economic indicators.

Reagan tweaked the housing inflation index in addition to unemployment numbers, Bush recalculated inflation statistics, and Clinton reduced household sampling to also tweak inflation. These are just a few things done to distort the bubble growth in the Financial sector and completely hide the effect of "Free Trade" sucking wealth and jobs from out nation.

The GOP's reaction to the State of The Union was to repeat the same old about our nation needing to compete in a global economy with leaving out the the important fact that those nations we are competing with do not have labor or product safety laws. They can pay however much they want, use toxic and cheap raw materials, decimate the environment and enslave the worker any work schedule.


There will be no recovery with Goldman Sachs dictating our economic policies and thanks to the SCOTUS unlimited "Free Speech".

[erb0087]

More from Morningstar.com:

"Friday's GDP report showed the core inflation rate - which strips out volatile food and energy prices and is closely watched by central bankers - rose 1.4% in the fourth quarter, after rising 1.2% in the third quarter. Fed officials define their statutory goal of price stability as inflation of 1.5% to 2%.

Other price inflation gauges also rose modestly. The price index for personal consumption expenditures climbed by 2.7% after increasing 2.6% in the third quarter.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, rose by 2.1%, after increasing 1.3% in the third quarter. The chain-weighted GDP price index increased 0.6%, after rising 0.4% in the third quarter.

Another component of GDP, housing, rose a second straight quarter. Residential fixed investment increased by 5.7% October through December. It surged 18.9% in the third quarter; builders were breaking ground as a government tax credit spurred buying of new houses.

Federal government spending in the fourth quarter increased 0.1%, after rising 8.0% in the third quarter. State and local government outlays fell 0.3%, the fourth drop in five quarters.

International trade gave a mild push to GDP. U.S. exports surged 18.1%, while imports increased 10.5%.

Business spending also boosted GDP. It rose by 2.9% in the fourth quarter, after falling 5.9% in the third quarter.

... 3M's chairman, George Buckley, predicted the U.S. automotive and housing industries won't recover until unemployment declines. He said the U.S. economy isn't likely to weaken further in 2010, but added he doesn't expect robust growth, either."