The fourth quarter 2009 GDP report is out. Edward Harrison urges caution:
There will be a lot said about this number. But, your takeaways should be: cyclical agents like inventory changes will drive the uptick near-term. This is being bolstered by stimulus. And the end result is higher disposable personal income. We should still look at [disposable personal income] and retail sales for signs of sustainability.
This is very close to my expectations and shows a fairly weak economy (real PCE increase 2.0%). The question is: what happens in 2010?
5.7 percent is a very good number. If we could sustain something like that for a little while then we’d start to make progress on the labor market. But the worrying thing here is that so much of the growth represents inventory shifts. The recession left firms with large excess inventories, then we had a few quarters in which inventory draw-down impeded growth, and what we saw in Q4 was the end of that process. You could imagine a bit more good inventory news in the future as firms restock, but it’s bound to be a transient thing.
Concerns persist that the economy’s momentum could fade, but there are signs that demand is improving. Consumer spending, for example, rose at a 2.7% annualized rate in the three months through November, excluding auto purchases, which were inflated by the government’s cash-for-clunkers program.
Inventory-led growth can’t last forever. But it’s a fine way to start.
[T]his is good news, but…we don't know what the final number will actually be [after the number is revised]. I would also suggest holding off on popping the champagne to celebrate a robust U.S. economy. Most economists predicted a healthy rate of GDP in Q4-2009, but expect that to decline from there to more moderate levels through 2010. And unemployment is also expected to hover near double-digits throughout the year.