As expected, a big GDP number, signifying nothing much. It's an inventory blip: topline growth at 5.7 percent, but only 2.2 of that is final demand.
GDP Grows at an Estimated 5.7 Percent Annual Rate in the 4th Quarter of 2009
US GDP grew at a 5.7% annual rate in the 4th quarter of 2009:
US GDP growth fastest in six years, by Alan Rappeport, FT: The US economy grew at the fastest rate in six years during the fourth quarter, offering hope that the recovery is gaining sustainable momentum, official figures showed on Friday.
US gross domestic product grew at an adjusted annual rate of 5.7 per cent in the last quarter of 2009, the commerce department said, a sharp acceleration from the 2.2 per cent increase in the prior quarter. ...
Christina Romer, who heads President Barack Obama's Council of Economic Advisers, called the report "a welcome piece of encouraging news", but warned that there would be bumps ahead on the road to recovery. ...
What's the main reason for the growth spurt?
Inventory liquidation slowed substantially during the quarter, as private businesses shed $33.5bn compared with $139.2bn in the third quarter. That added 3.39 percentage points to overall output.
Consumer spending, which typically accounts for about 70 per cent of economic activity, grew by a less-than-expected 2 per cent... GDP was boosted by a rise in non-residential fixed investment, which increased by 2.9 per cent after having fallen by 5.9 per cent in the third quarter.
Analysts were encouraged by the fact that growth advanced so quickly in spite of a slim 0.1 per cent increase in government spending. ...
The pace of growth is expected to slow in the coming quarters, however, as the build-up in inventories moderates and the impact of government stimulus measures fades. ...
This report will give deficit and inflation hawks ammunition:
..."The hawks are starting to get a little more back into their hawking mode," Mr Bethune said. "The biggest risk is that we tighten monetary policy too early and see a spike in interest rates." ...
And don't forget about jobs:
"While positive GDP growth is a necessary first step for job growth, our focus must remain on getting Americans back to work," Ms Romer said.
Paul Krugman predicted this GDP growth surge would come, and he warned us not to get too excited about it:
Here's the warning itself:
Calculated Risk beat me to this: the economists at Goldman Sachs are now predicting 5.8 percent growth in the fourth quarter. But they also say that the headline number will be highly misleading: two-thirds of the growth will be an inventory bounce, with final demand growing only 2 percent. In short, it will be a blip.
CR does miss one small trick, however: he asks when we last saw growth that high combined with rising unemployment, and says 1981. That's true. However, the last time we saw an initial report of 5.8 percent growth combined with rising unemployment is much more recent: the first quarter of 2002. The quarter's growth was later revised down, but at the time there was much unwarranted celebration (unemployment didn't peak until summer 2003).
So here comes the blip. Curb your enthusiasm.
Jim Hamilton is a bit more positive:
Just because the production gains can be accounted for in terms of slower inventory drawdown doesn't mean they aren't real, and doesn't mean they can't continue. I noted in July that we might expect inventory restocking to add 1.6% to the annual GDP growth rate for each of the first four quarters of the economic recovery, and we haven't even yet begun that inventory restocking process.
But he's not sounding the all clear just yet:
The question, though, is what we'll see for the other components of GDP. Exports grew more than imports in Q4, with the result that net exports contributed 0.5 percentage points to that 2.3% growth in real final sales. That's certainly a very welcome development and a critical step for correcting the imbalances that have been very troubling over the last decade.
Government spending made no contribution to Q4 growth, which again is a consequence of the algebra of growth rates-- since real government purchases in Q4 were about what they had been in Q3, they made zero contribution to the growth rate, which is based on the change between Q4 and Q3. Fixed investment contributed 0.4 percentage points and consumption 1.4 percentage points to the 2.3% growth in real final sales and to the 5.7% growth in real GDP. Those are better numbers for consumption and fixed investment than we'd been seeing in the first half of the year, but not the sort you'd expect if a normal strong recovery was now fully in play.
Donald Marron breaks down GDP growth into its component parts:
More reactions:
- Brad DeLong: 5.7% Real GDP Growth Rate in the Fourth Quarter (Where Oh Where Is My Okun's Law? Department)
- Calculated Risk: A Few Comments on Q4 GDP Report
- Andrew Leonard: Economy surges, nation yawns
- Megan McArdle: Dude, Where's My Job? Graph:
- Paul Vigna: GDP Boo-Yah Humbug
- Real Time Economics: Wage and Benefits Grow Slower Than Inflation
My worry is simple. The Senate is about to take up the issue of what more can be done to help with job creation, and this report will give legislators unsure of how aggressively to pursue further job creation efforts a reason to come down on the side of doing very little, a mistake in my opinion. And it gives legislators opposed to further government help, or ideologically opposed to doing anything at all, the ammunition they need to resist any further fiscal policy efforts.
