Friday, January 29, 2010

Fourth Quarter GDP Grew 5.7%

Thanks mostly to the inventory replenishment.

Economy grows at 5.7 pct pace, fastest since 2003
(1/29/2010 AP via Yahoo Finance)

WASHINGTON (AP) -- The economy's faster-than-expected growth at the end of last year, fueled by companies boosting output to keep stockpiles up, is likely to weaken as consumers keep a lid on spending.

The 5.7 percent annual growth rate in the fourth quarter was the fastest pace since 2003. It marked two straight quarters of growth after four quarters of decline. Growth exceeded expectations mainly because business spending on equipment and software jumped much more than forecast.

Still, economists expect growth to slow this year as companies finish restocking inventories and as government stimulus efforts fade. Many estimate the nation's gross domestic product will grow 2.5 percent to 3 percent in the current quarter and about 2.5 percent or less for the full year.

That won't be fast enough to significantly reduce the unemployment rate, now 10 percent. Most analysts expect the rate to keep rising for several months and remain close to 10 percent through the end of the year." [The article continues.]

Well, 5.7% GDP growth didn't produce any increase in employment. Why would you assume 2.5% GDP growth would reduce the unemployment at all?

Of 5.7% growth,

  • 3.4% from replenishing depleted inventories
  • 1.4% from consumer spending (Cash for clunkers and first-time homebuyer credit have a lot to do with it, a market distortion)
  • 0.5% from net exports

The stock market is either not impressed, selling the news, or not believing the government number (or all three). All major stock indices are presently negative for yet another day. The slide, which started the day after the Massachusetts special election, has taken the Dow Jones Industrial Average from 10,720 to 10,105 (today's low), 5.7% decline in 8 trading days (hey the same number as GDP growth...).

President Obama's renewed, campaign-style aggressiveness isn't helping the investor sentiment. It seems what he's doing is "doubling down" - going headlong into the policies that haven't worked. What are those policies? Whether it's health care or job creation, his policies have one central theme: Washington is the answer for all the ills. Good luck with that.


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