U.S. Economy Grew at 5.7%; Inventory Rebuilding

123jump.com Staff
29 Jan, 2010
New York City

The U.S. economy expanded at 5.7% in the last quarter of 2009 as businesses rebuild inventories. Consumer and business spending remained sluggish and inflation measure was within the target range set by the Fed. Weak job market has curbed the consumer spending.

[R]10:30 AM New York – The U.S. economy expanded at 5.7% in the last quarter of 2009 as businesses rebuild inventories. Consumer and business spending remained sluggish and inflation measure was within the target range set by the Fed. Weak job market has curbed the consumer spending.[/R]

The U.S. economy expanded at a faster pace in the last quarter of 2009 as businesses slow inventory liquidation but consumer remained on the sidelines.

Gross domestic product increased for the second quarter in a row but for the year shrank at 2.4%, the biggest decline since the drop of 10.9% in 1946.

The economy in the fourth quarter expanded 5.7% from the third quarter and 0.1% from the quarter a year ago. Real GDP increased at 2.2% in the third quarter.

The broadest measure of economic activity increased at a slower pace after deducting changes in inventories. Real final sales of domestic product excluding private inventories increased at an annual rate of 2.2% compared to 1.5% in the third quarter.

Current dollar GDP, market value of output of goods and services increased 6.4% or $221.3 billion in the fourth quarter to a level of $14.463 trillion

The acceleration in real GP in the fourth quarter reflected an increase in private inventory investment and an upturn in non-residential fixed investment and a deceleration in imports.

Contribution from automobile production added 0.61 percentage point to the fourth quarter economic expansion compared to 1.45 percentage points in the third quarter when auto incentives lifted the sale.

The change in real private inventories contributed 3.39% to the fourth quarter change in real GDP and added only 0.69% in the third quarter. Inventories still declined in the quarter. Private businesses decreased inventories by $33.5 billion following a decline of $139.2 billion the third quarter and $160.2 billion in the second quarter.

Real federal government consumption expenditures and investment increased 0.1% in the fourth quarter compared to 0.8% increase in the third quarter.

The economy is still suffering from weak job market. In the quarter net payroll decline was 208,000 and unemployment at 10% does not offer any prospect of a sharper increase in consumer spending.

Consumer spending measured as real personal consumption expenditures increased 2% in the fourth quarter after increasing at 2.8% in the third quarter.

The measure of inflation, the price index of gross domestic purchases increased 2.1% in the quarter compared to an increase of 1.3% in the third quarter.

Personal consumption increased $109 billion or 4.2% in the fourth quarter compared to increase of 5.2% or $132.3 billion in the third quarter. Personal saving rate was 4.6% in the fourth quarter compared to 4.5% in the third quarter.

The housing market, an important component in the economic activity showed a further increase but at a slower pace. Residential fixed investment increased 5.7% in the quarter after surging 18.9% in the third quarter.

Business spending helped the economy but very modestly. The spending in the quarter increased 2.9% after surging at a rate of 5.9% in the third quarter.

Higher slowdown in the imports provided small impetus to the economy. Exports increased 18.1% compared to 17.8% in the previous quarter and imports increased 10.5% compared to 21.3% in the previous quarter.

The economy increased at 0.4% in 2008 and for 2009, real GDP decreased 2.4%, the worst annual performance since 1946.

The downturn in real GDP in 2009 was largely driven by the decrease in non-residential fixed investment and a fall in exports and a larger decrease in private inventory investment.

Federal non-military spending increased at 8.1% in the quarter after rising at 7% in the previous quarter.

Preliminary estimate of economic growth of 5.7% will be revised on February 26.