Saturday, January 30, 2010

GDP Grows By 5.7%: Has The Recovery Finally Taken Hold?

On Friday, the Bureau of Economic Analysis (BEA) gave its initial guesstimate of 4th quarter Gross Domestic Product (GDP) of 5.7% - a number much higher than most analysts had expected.  At first, this number appears to be pretty solid and follows a downwardly revised 2.2% figure for the third quarter.

The first problem is that this preliminary estimate is nothing more than a guess and is subject to at least two more revisions before the figure becomes finalized.  Of the 5.7% number reported, a full 3.4% was the result of inventory shrinkage, as companies pulled more goods off their shelves.  In so doing, there was NO positive effect on employment, which continues to remain at unacceptably high levels.

While the fourth quarter figure is robust, GDP still remains nearly 2% BELOW the peak reached in early 2008.

The largest contributor to growth was consumer spending, which grew at 2% but was down from 2.8% in the prior quarter, when sales were boosted by the "cash for clunkers" program.

One sign from the GDP report of improved confidence at companies was an annualized 13.3% increase in spending on equipment and software—the biggest gain in nearly four years. In the past, rises in capital spending have tended to signal an increased willingness to hire.

Marko's Take?  The fourth quarter will mark the end of the "recovery" and a more severe contraction will begin to gain steam.  Without an increase in employment, no economic upturn of any duration can possibly be sustained.  Unfortunately, the oncoming "second dip" is likely to be far WORSE than the first one. 

Other ongoing economic problems include restrictions in credit availability and percolating inflation - which will undoubtedly begin to accelerate shortly.

Have a great weekend.  Disagree?  Agree?  TAKE ME ON!

Marko's Take

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