Economy soars 5.7 percent in Q4, fastest in 6 years

[Mr. Peabody]

U.S. Economy Up 5.7 Percent In Q4

By REUTERS
Filed at 8:41 a.m. ET

WASHINGTON (Reuters) - The U.S. economy grew at a faster-than-expected 5.7 percent pace in the fourth quarter, the quickest pace in more than six years, as businesses reduced inventories less aggressively, the Commerce Department said on Friday.

The first estimate put fourth-quarter gross domestic product growth at its fastest pace since the third quarter of 2003. The economy expanded at a 2.2 percent annual rate in the third quarter.

Analysts polled by Reuters had forecast GDP, which measures total goods and services output within U.S. borders, growing at a 4.6 percent rate in October-December period.

Growth was boosted a sharp slowdown in the pace of inventory liquidation, a factor that could mask the strength of the economic recovery from the longest and deepest downturn since the Great Depression.

But even stripping out inventories, the economy expanded at an annual rate of 2.2 percent, accelerating from the 1.5 percent increase in the third quarter, reflecting relatively strong performance from other segments of the economy.

Business inventories fell only $33.5 billion (20.8 billion pounds) in fourth quarter after dropping $139.2 billion in the July-September period. The change in inventories alone added 3.39 percentage points to GDP in the last quarter. This was the biggest percentage contribution since the fourth quarter of 1987.

For the whole of 2009, the economy contracted 2.4 percent, the biggest decline since 1946, the first year after the end of World War II, the department said.

In the last three months of 2009, consumer spending increased at a 2 percent annual rate, below the 2.8 percent annual pace in the prior quarter when consumption got a boost from the government's "cash for clunkers" program.

In the forth quarter, consumer spending contributed 1.44 percentage points to GDP.

Consumer spending, which normally accounts for about 70 percent of U.S. economic activity, has been held back by the worst labour market in a quarter century.

Business investment in the fourth quarter grew for the first time since the second quarter of 2008 as the drag from the troubled commercial real estate was offset by robust spending on equipment and software. Business investment rose at a 2.9 percent rate after falling 5.9 percent over the previous three-month period.

The growth of spending on new home construction braked sharply in the fourth quarter to an annual rate of 5.7 percent from an 18.9 percent pace in the third quarter. Home building has received a lift from a popular tax credit for first-time buyers, but recent data have hinted at some weakness starting to creep in.

Export growth outpaced imports, leaving a trade gap that contributed half a percentage point to GDP growth in the last quarter.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)

Good news. However, like the article alludes to, until consumer spending increases and we have more jobs, we may just be looking at temporary growth.

[coyotes_geek]

Good news. However, like the article alludes to, until consumer spending increases and we have more jobs, we may just be looking at temporary growth.

My thoughts as well. What happens this quarter should be a better sign of what direction we're heading.

[George Gervin's Afro]

Hopefully this leads to jobs.

[SouthernFried]

There is more bad news in this than good. 3.4% of the growth was in Inventory calculations alone. The debate over larger vs smaller inventories and how fast your inventory is reduced as compared to how it's replenished has been going on all my life. But, selling your inventory is almost always a good thing...unless your liquidating. Consumer spending is seriously low, and Home construction is almost nil. Business investing is seriously low as well.

This massive Govt spending is temporary also. I believe the long term economic harm of increasing debt far outweighs the short term growth in statistical numbers.

The best news in this whole report, imho...is the export scenario. Weakening dollar does have some positive as well as negative affects.

The worst news...is we now have a 12 Trillion dollar debt.

I wouldn't go long on the dollar just yet.

[coyotes_geek]

This massive Govt spending is temporary also. I believe the long term economic harm of increasing debt far outweighs the short term growth in statistical numbers.

The worst news...is we now have a 12 Trillion dollar debt.

This is what worries me. Right now we're getting to finance all that government debt at cheap rates. Once the economy starts to recover interest rates will go up and that debt burden will get a of a lot heavier.

As that debt burden gets heavier and heavier, that's going to keep our politicians under pressure of having to choose between cutting government services, raising taxes or maintaining huge deficits. And I think we all know what method our politicians who don't think past the next election are likely to choose.

[ElNono]

Keynes has nothing to do with this recovery...

[ElNono]

This is what worries me. Right now we're getting to finance all that government debt at cheap rates. Once the economy starts to recover interest rates will go up and that debt burden will get a of a lot heavier.

As that debt burden gets heavier and heavier, that's going to keep our politicians under pressure of having to choose between cutting government services, raising taxes or maintaining huge deficits. And I think we all know what method our politicians who don't think past the next election are likely to choose.

I agree. The idea is to prime the economy by spending, which they seem to do just fine, but the second stage should be to collect more money from a vibrant economy and use it to pay off the debt accrued, and they never seem to do the second part... and party colors have nothing to do with it...

[TeyshaBlue]

I agree. The idea is to prime the economy by spending, which they seem to do just fine, but the second stage should be to collect more money from a vibrant economy and use it to pay off the debt accrued, and they never seem to do the second part... and party colors have nothing to do with it...

[EVAY]

I agree. The idea is to prime the economy by spending, which they seem to do just fine, but the second stage should be to collect more money from a vibrant economy and use it to pay off the debt accrued, and they never seem to do the second part... and party colors have nothing to do with it...

You are right that party colors have nothing to do with the willingness to tax. GHW Bush did it after the big economic boom of the 80's. That 'prosperity', which many Republicans at the time attributed to to the 'genius' of Reagan and the deregulation that he championed, failed to accept that equal to the impact of either of those things was the massive debt buildup which accompanied the combination of increased defense spending and federal tax cuts. (Mind you, there was no Republican complaint about deficits or debt at the time).

GHW Bush knew 'voodoo economics' when he saw it, and accepted a tax increase during his term. His own party crucified him for it, and Clinton was elected. Then Clinton also increased taxes, and the resulting 'republican revolution' of 1994 ensued. What also ensued was prosperity at virtually unprecedented levels (even after all those nasty tax cuts), which we now recognize was equally a function of Greenspan as Clintonian or 'Newtonian' brilliance. However, the surplus happened, and there was one candidate in the 2000 election who suggested using the surplus to actually pay down debt. The Republican candidate at the time mocked that suggestion and used the surplus as 'proof' that the government had too much of the people's money, and so we should have massive tax reductions. He won, so we did.

The 2000's saw a redux of the increase in defense spending and lower taxes that characterized the Reagan years, and the result was the same as it was in the Reagan years, i.e. ballooning deficits and national debt. Again, not a peep from the Republican establishment about concern about grandchildren.
Greenspan was still in charge of the fed, so the economy kept growing, all of which was attributed to the same supply side success and deregulation as before.

Some of us saw the debt as unsustainable then. Most of us did NOT know the danger that the deregulation and Greenspan policies had for the economy as a whole.

Now, we have unheard of debt, unheard of deficits, and who is going to take the role of the gutsy pol who says: "This problem is not going to be solved by government spending cuts alone or by consumer spending increases alone. This problem is embedded, is systemic, and is going to require BOTH government spending cuts AND tax increases to protect the economy for the LONG RUN."

Because whoever says that is gonna get booted out of office immediately.

Consumers are behaving rationally, for the first time in quite a while, in the face of this downturn. They are not spending as much, and they SHOULDN'T spend as much as they were. This economic recovery, if it is to be strong and sustainable, will be slow, because it cannot come on the basis of consumers spending above their means , as they have for so long.

[Winehole23]

I agree. The idea is to prime the economy by spending, which they seem to do just fine,

Counting yer chickens before they hatch.

The proposition that the attempted save of the economy was successful is not yet settled, IMO. Some commentators are making comparisons to 1937. Under conditions of weak demand, "robust" recovery cannot be sustained for very long, and without the government crutch, the whole thing could collapse, just suppose, under the pressure of energy prices ing in response to the outbreak of a US-Iran war.

but the second stage should be to collect more money from a vibrant economy and use it to pay off the debt accrued, and they never seem to do the second part... and party colors have nothing to do with it.

Sadly, no. Fiscal conservatives are not very common in the US Congress, even among the conservatives.

[ElNono]

The proposition that the attempted save of the economy was successful is not yet settled, IMO. Some commentators are making comparisons to 1937. Under conditions of weak demand, "robust" recovery cannot be sustained for very long, and without the government crutch, the whole thing could collapse, just suppose, under the pressure of energy prices ing in response to the outbreak of a US-Iran war.

Sure, I don't think we're out of the woods yet. My perspective is mostly about how this is SUPPOSED to work versus how it has been mostly applied historically. That said, ing about spending in a recession is somewhat misguided, IMO. You should be ing when the economy is indeed growing and well, and we're not paying off the debt that got us there.

[Winehole23]

Agreed.

[duhoh]

I don't think our government will EVER pay off the debts.

[coyotes_geek]

Pay them off entirely? No. Hopefully they at least start paying them down though. Interest on the debt alone costs the taxpayers upwards of $600 billion a year. Certainly there are better things that could be done with that money.

[Winehole23]

Certainly there are better things that could be done with that money.

Paradoxically, this becomes a justification for new spending too. Spend it on the people now, worry about the bill later.

Why piss it away in the politically infertile wasteland of debt retirement, when my cons uents want gubmint action now?

[ElNono]

Paradoxically, this becomes a justification for new spending too. Spend it on the people now, worry about the bill later.

Why piss it away in the politically infertile wasteland of debt retirement, when my cons uents want gubmint action now?

Agreed. IE: Tax cuts, as EVAY mentioned...

[boutons_deux]

Not very exciting, since the %age growth was against a low number.

Notice the NOBODY is predicting anything but 10% unemployment into 2011, maybe beyond.

As happened under dubya, the "economy" but real household income was flat. Without the 2nd income of the wife, real household income, since St Ronnie started the Conservative Blood Bath in 1980, is flat to negative, (single men real income since 1975 is down) aka, businesses grew, but the The American Dream Boats didn't get floated, so tax cuts as a way to increase the general wealth.

Now we have economic growth, not only without household income growth, but without even having jobs, as many US companies are much less mfrs than before, they are resellers of products made in China, etc.

[Marcus Bryant]

Before the idiot croutons of the day spread their cheeks wide for the income tax, the 2nd income of the wife wasn't needed. Figure it out you dumb .

[Winehole23]

Even if the writing was already on the wall, as late as the fifties and sixties there still was a tacit one-earner social compact with defined benefit plans for many college grads and some even high school grads who picked the right trades.

Back then, we were savers, and banking was plain vanilla. What dumb s we were to trade it all for the big pile of crap we have now.

[boutons_deux]

"the 2nd income of the wife wasn't needed."

2nd/wife income was needed for real household income to make gains. That's how the middle class TREADED WATER. GFY

[Marcus Bryant]

lol.

First, find a woman before you about them having to work. The surest sign a jerkoff such as yourself lacks female companionship is that he's ing about his woman having to work.

Second, go your own bitter ass. All I see is ing about the GOP but you certainly don't want to live the revolutionary life.

Third, again, the middle class wouldn't have to worry about this if morons like yourself weren't so ing gullible.

Fourth, keep on ing that chicken in Live Oak.

[Cant_Be_Faded]

damn marcus bringin tha thunder

[spursncowboys]

Can we take out govt. growth and then see how our economy is?

[Nbadan]

The trick is not neccessarily to pay down the debt, you want some debt for security and stability reasons, but you don't want too much debt......for instance, if we are collecting 2.5 trillion dollars in Federal taxes today, and you increase revenue generation, and as a result, taxes and get that total to $3.0 trillion , then a $600b dollar annual interest debt doesn't hurt as much, but the economy has got to continue to grow at a steady rate of between 2-3%...any faster than that signals watch out! ...inflation ahead

[Marcus Bryant]

that. Yeah, you want a large national government debt to continue to justify continued national government intervention in the country's affairs. Or, you're a sycophantic lackey for the establishment.