Fourth quarter 09 GDP estimate released

News release here. For 4Q09, real gross domestic product grew by 5.7%. Keep in mind that this is an estimate and subject to revision. Still, this is the second quarter of positive growth (3Q09 was +2.2%) quarter to quarter. Normally this would mark, by definition, the end of a recession. It was also predicted by private economists that the economy would have turned around by mid-2009. Four of the top five economies of the world did so, meaning they had positive growth the first two quarters of 2009. What happened? The economy has been stuck due to uncertainty – some would say stuck on stupid. But whatever cliché you want to use, there are two primary reasons.

  1. The administration pushed massive changes to the economy instead of concentrating on economic recovery. Most of these proposals would have a negative effect on the economy by increasing costs to business and individuals. The result was to introduce uncertainty about the future business climate.
  2. The so called stimulus bill, American Recovery and Reinvestment Act of 2009, spends most of its money in 2010. The congressional Democrats thought this would help to insure their election in fall of 2010. And most of the stimulus money went to helping state and local governments.

One cautionary point in the report concerns inventory.

The change in real private inventories added 3.39 percentage points to the fourth-quarter change in real GDP after adding 0.69 percentage point to the third-quarter change. Private businesses decreased inventories $33.5 billion in the fourth quarter, following decreases of $139.2 billion in the third quarter and $160.2 billion in the second.

So the GDP growth was 2.3% absent rebuilding inventories. Still, jobs are required to restock the nations shelves. The trend is in the right direction and real dollar sales did increase but total inventories are not increasing.

It is legitimate to claim the recession is over by definition. Now the debate will be the rate of recovery, and uncertainty will still play a major role. Both the CBO and the Whitehouse OMB, in their mid-year 2009 reports, predict a very slow recovery with unemployment above 6% for a significant portion of this decade. Normally, you should create about one million new jobs for each 1% increase in GDP so the economy is still rebuilding the base and not growing significantly in terms of jobs. Economists have a word for uncertainty. It is called RISK.

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