GDP Surges to 5.7%

Jan. 29, 2010
Led by spending to restock inventories

The U.S. economy roared back to life with a 5.7% growth pace in the fourth quarter, led by brisk business spending to restock inventories and for new equipment and software, the Commerce Department said on Jan. 29.

It was the strongest growth in six years, even though consumer spending, the traditional driver of economic activity, remained sluggish.

The figures showed growth accelerated from the 2.2% annualized pace in the third quarter, when the economy expanded for the first time after four quarters of contraction and the deepest recession in decades.

Even with the rebound, gross domestic product contracted by 2.4% for the full year 2009, the worst performance since 1946, due to the collapse in economic activity in the early part of the year.

The big gains came in large part from businesses ramping up production to rebuild inventories, which economists say may skew the picture of overall activity but is a normal part of recovery. Inventories accounted for 3.39 percentage points of GDP.

Other factors helping fourth-quarter GDP included auto production, which accounted for 0.61 percentage points of the total. A slowing pace of imports also boosted the growth rate.

Capital spending on equipment and software surged 13.3%, another significant contributor.

The data showed exports surged 18.1%, making trade a positive contributor to GDP since exports increased more than imports, which were up 10.5%.

Consumer spending, which is traditionally the key driver of economic activity, rose at a 2% pace, down from 2.8% in the third quarter, and accounted for 1.44 percentage points of GDP.

"This suggests pretty good momentum heading into the first quarter," said Sal Guatieri, economist at BMO Capital Markets. "It suggests the recovery is gaining legs."

The White House hailed the new report as "the most positive news to date" on the recovering economy.

Christina Romer, who chairs President Barack Obama's Council of Economic Advisers, welcomed a "truly extraordinary" change from the first quarter of 2009, when GDP fell at a rate of 6.4%. But she cautioned there would be bumps in the road to recovery ahead, and added that "while positive GDP growth is a necessary first step for job growth, our focus must remain on getting Americans back to work."

Economists say the key to a more sustainable pace of growth will be a rebound in consumer spending, which accounts for around two thirds of economic activity.

Many have argued that the underlying pace of expansion may be too weak to help bring down unemployment, currently at 10%.

Copyright Agence France-Presse, 2010

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