U.S. GDP & economy grows at 5.7% but can it keep up?

January 29, 2010 by · Leave a Comment
Filed under: Economic News 

It sounds like a robust number but when you look what it is compromised of, 3.4% of it is from inventory restocking from the holidays, not growth in spending.  According to the article, the major impact of inventory rebuilding is a red flag for numbers going forward.  The market has priced some real recovery in 2010 and it might not happen so we could see another leg down in the economy.   We will be watching the next 2 quarters closely and if it doesn’t not support the recovery, we will have a choppy September and October.

Forbes – The U.S. economy crushed expectations by growing at a 5.7% clip in the fourth quarter of 2009, but even as Wall Street rallied on the news there are plenty of warning signs of a slower pace ahead.

A restocking of inventories by American businesses drove a large portion of the fourth-quarter increase, contributing 3.4% compared with just 0.7% in the third quarter when growth was a far calmer 2.2%. Excluding the inventory factor, real final sales of domestic product were up just 2.2% in the October-December period, after rising 1.5% from July to September.

The big impact of inventories is something of a red flag, particularly since the consumer input to GDP was weaker in the fourth quarter than in the prior period, and Dan Egan, president of the Massachusetts Credit Union League, expects the Feb. 26 updated look from the Commerce Department to rein in the estimate.

“[The 5.7% figure] was a surprise,” Egan said. “It’s an encouraging recovery sign, but there’s a difference between Wall Street encouraging and Main Street encouraging.”

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