Saturday, January 30, 2010

NOT SO BAD


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The U.S. economy grew at a breakneck rate of 5.7 percent at the end of 2009, the government said Friday, providing the strongest evidence yet that the nation will avoid a dip back into recession.

The growth spurt in gross domestic product, the broadest measure of economic activity, was the largest in six years. But economists cautioned that such a pace will probably not persist and that the economy will grow at a more measured rate in the coming months.
"We can now say that this is a sustainable recovery," said John Silvia, chief economist at Wells Fargo. "It's certainly not a boom, but it is a slow, steady recovery."
The fine print of the Commerce Department report did offer several pieces of promising news: Businesses invested more in equipment and software, exports rose at a healthy clip and consumer spending was stable. The recession, it is increasingly certain, ended over the summer.
But the biggest factor contributing to growth was that businesses, which remain slow to hire, were cutting back their inventories much slower than before. For two years, companies have aggressively reduced the goods on store and warehouse shelves, therefore producing less. After all those cuts, businesses now need to restock, which will spur more production.
The slower inventory drawdown accounted for more than half of the growth in GDP in the fourth quarter. GDP aims to capture the value of all goods and services produced within U.S. borders.
"Up until recently, whenever there was a pickup in demand, companies would go back to the stockroom and satisfy those orders by depleting warehouse shelves," said Bernard Baumohl, chief global economist at the Economic Outlook Group. "But at some point . . . you run out of things in the stockroom, so you have to start producing again, and that will increase GDP growth and lead to more hiring."
But the inventory bounce is temporary. So in months ahead, growth looks to be less spectacular.
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