5.7 percent 4Q GDP growth … then a slowdown

January 29, 2010

Or so says RDQ Economics:

The recovery from the Great Recession firmed in the fourth quarter as real GDP increased at its fastest rate since the third quarter of 2003.  However, also as expected, a sharp slowing in inventory liquidation accounted for 3.4 percentage points (or 60%) of the 5.7% increase in real GDP.  We are particularly impressed by the 13.3% increase in nonresidential investment (upside risk in this area was flagged by yesterday’s durable goods report).

We were also pleased that none of the growth came from government spending, which fell by 0.2%.  From the Fed’s perspective, however, this report does not bring a rate hike closer.  First, the unemployment rate rose from 9.6% in the third quarter to 10.0% in the fourth (raising upside risk to the estimates for potential growth).  Second, the GDP deflator increased by only 0.6% (although, perhaps counter-intuitively, this modest gain was due to the subtraction effect of higher import prices, which surged 16.3%—the price index for domestic purchases rose 2.1% in the fourth quarter, which is a measure of what people and businesses paid, whereas the GDP price index measures the price of what the U.S. produced).

Nominal GDP growth was a robust 6.4% in the quarter (and 0.8% year-over-year).  As the addition to growth from inventories fades somewhat, we see growth in the first quarter of 2010 at around 2½%

3 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Yeah, yeah, sure thing. Everybody is petrified of being too optimistic on the outlook for the US economy. Long past time for some original thinking!

Posted by gotthardbahn | Report as abusive

One thing I’ve come to expect on these numbers they release is that they will be revised in a month or two. And more than likely to the downside if the current trend is worth noting.

Laffer says the numbers will be better than expected this year because businesses will pull income into 2010 to avoid the tax hike in 2011. Then 2011 will be very bad.

It rings true.

Posted by proreason | Report as abusive