The BEA's advance estimate for GDP just came out this morning. The "headline" number was a +5.7% annual growth rate in the 4th quarter of 2009. As I had warned you about, the real change in private inventories drove most of the increase—3.39% of the fourth-quarter change in real GDP to be precise (i.e. most of the the 5.7% change). The Wall Street Journal alerted me to the news this morning.
The U.S. economy surged at the end of 2009, driven more by slower inventory liquidation than by consumer spending.
Slower inventory liquidation? You may thinking, am I reading this right? Yes, you are. From the BEA's press release—
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.
Here's the graph of changes in private inventories since 1997.
Figure 1 — Changes in Private Inventories (BEA data) through 2009:Q3 taken from here. Sorry, the dates are a bit hard to read, but the downward trend since 2008:Q1 is clear enough.
MarketWatch reports some other outstanding yardsticks to measure our progress—
Even with healthy growth in the second half of the year, the economy shrank 2.4% in 2009, the worst year for GDP since the 10.9% drop in 1946, when the United States geared back to a peacetime economy. Business investment fell the most since 1942...
Final sales, which exclude inventories, increased at a 2.2% annual rate in the fourth quarter, the most since the spring of 2008. For all of 2009, final sales fell 1.7%, the largest decline since 1946...
Consumer spending rose at a 2% annual rate. For all of 2009, consumer spending fell 0.6%, the worst year since 1974. Spending on services for the year grew at the slowest rate in 71 years...
Fell the most since 1942. Largest decline since 1946. Worst year since 1974. Slowest rate in 71 years. The Chicago Fed's National Activity Index was –0.61 in December, down from –0.39 in November, meaning things got worse month-over-month. I consider their CFNAI-MA3 to be the most reliable guide to where the economy stands.
Less bad is still bad. Well alright, it's not all bad. The stock market is not rallying, just as I predicted it would. This kind of "decrease in the decrease" in inventories is a one-time event when a "recovery" is underway. It means that businesses are not anticipating any large upswing in personal consumption expenditures (PCE, which makes up 71% of GDP). After all the stimulus, and the Fed's massive intervention in finance & the housing market, this is best we could do.
What's worse, this number will undoubtedly be revised downward in future reports. Don't look for a Rockin' Good Time in 2010.
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