Economists Wary of Recent Quarterly Gains

The U.S. economy racked up its best quarter in six years when the government a strong 5.7 percent at the end of 2009. That makes two straight positive quarters after a year of declines, but economists say don't get used to it, reports CBS News Correspondent Anthony Mason.

"I don't think it can be sustained at that rapid pace," said Stu Hoffman, chief economist of PNC Financial Services.

A big reason for the rebound: Businesses had cut their inventories to the bone.

"What that means is that any demand that increased now immediately translates into economic activity because there's no stock left to take it out of," said Bill Hewgley, CEO of Metalworking Solutions in Chatanooga, Tenn.

Hewgley said his business is a good barometer of the economy, and business is picking up.

"I now say by April you'll be saying on television things are getting better," Hewgley said.

"We're definitely seeing signs of life in the private sector, in business investment, in consumer spending and even in housing," Hoffman said.

Housing constructions were up 5.7 percent. Consumer spending jumped 2 percent. They noticed it at Paddywax, a Georgia-based candle and home fragrance company.

"Towards the end of the fourth quarter the consumer had a different outlook and was a little bit more optimistic and that filters up," Paddywax's David Duncan said.

After his business flickered early last year, it's come roaring back.

"I'm very optimistic," he said.

But the most encouraging sign may be business investment in equipment which surged more than 13 percent.

Hewgley just spent half a million dollars on a new laser cutter.

"We decided to go ahead and invest in the capacity to be ready the day the marketplace says, 'We're OK, we're going to buy some product,'" Hewgley said.

But the fourth quarter surge did not produce any jobs. The president's proposed $5,000 tax break for hiring could make some companies pull the trigger, but economists say no company will hire till its clear the business is there.

  • Anthony Mason

    CBS News senior business and economics correspondent; Co-host, "CBS This Morning: Saturday"