U.S. Economy Grew at 5.9% in Q4


The U.S. economy expanded at a 5.9 percent annual rate in the fourth quarter, more than the government reported last month, reflecting stronger business investment and a greater contribution from inventories.

Inventories added 3.88 percentage points to GDP, more than previously reported, and investment in software and equipment grew at the fastest pace in almost a decade.

Manufacturers such as Deere & Co. may continue to lead the recovery as increasing sales prompt companies to boost purchases and add to stockpiles. At the same time, consumer spending, which accounts for 70 percent of the economy, is likely to be restrained by an unemployment rate that’s forecast to average 9.8 percent this year.

For all of 2009, the economy shrank 2.4 percent, the worst single-year performance since 1946.

The GDP report is the second for the fourth quarter and will be revised in March as more information, such as corporate profits, becomes available to the government.
Consumer spending rose at a 1.7 percent pace, compared with the 2 percent rate forecast by economists and a 2.8 percent gain in the prior quarter. Spending added 1.23 percentage points to GDP.

Third-quarter purchases received a boost from the government’s auto-incentive program that offered buyers discounts to trade in older cars and trucks for new, more fuel- efficient vehicles. The plan expired in August.

Household purchases dropped 0.6 percent last year, the biggest decrease since 1974.

Increases in production last quarter stemmed the slide in inventories from earlier in the year. Stockpiles dropped at a $16.9 billion annual pace following a $139.2 billion decline the previous three months. Inventories declined at a record $160.2 billion pace in the second quarter.

Today’s report showed purchases of equipment and software increased at an 18.2 percent pace in the fourth quarter, the most since 2000. The gain helped offset a 13.9 percent drop in commercial construction, leaving total business investment up 6.2 percent during the final three months of 2009.

The job market is one part of the economy where a recovery is slow to take hold. Payrolls fell by 20,000 last month after a 150,000 drop in December. The U.S. has lost 8.4 million since the start of the recession in December 2007, the most of any slowdown in the post-World War II era.

In other areas of the economy, today’s report showed a smaller trade deficit, which contributed 0.3 percentage point to fourth-quarter growth. Government spending fell at a 1.2 percent pace after a 2.6 percent increase the previous quarter.

Residential construction climbed at a 5 percent rate last quarter after expanding at a 18.9 percent pace in the previous three months.

Inflation stayed within the Fed’s long-term forecast range, today’s report showed. The central bank’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 1.6 percent annual pace following a 1.2 percent increase in the prior quarter.


TradingEconomics.com, Bloomberg
2/26/2010 9:48:01 AM