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Monday, July 15, 2024 | Back issues
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New GDP Report Shows Strong Growth at 5.7%

WASHINGTON (CN) - The economy expanded by an annual rate of 5.7 percent in the fourth quarter of 2009, marking the strongest growth in six years, the Commerce Department announced Friday. "Today's GDP report is the most positive news to date on the economy," said Christina Romer, President Obama's chief economic adviser.

The October-December growth was driven by increased consumer spending and exports, and more than half stems from companies' buying to refill their inventories.

In a telephone interview, Research Director for the Committee on Economic Development Joe Minarik said, "The top-line number on economic growth is an attention getter," but noted that the growth's dependence on inventory spending means the numbers show less momentum than at first glance.

Now it is a question of whether final consumer demand will keep inventory purchases by stores going, he said.

When asked about what the numbers mean for job creation Minarik said, "They ideally will be tied to increased employment to produce those good, but we don't see evidence of that yet."

The growth continues an uptick that began in the second quarter of 2009, when production grew by 2.2 percent, driven in large part by car sales under the Cash for Clunkers program, which expired during the last quarter. Economists had worried whether such growth would continue.

When asked whether today's numbers indicate a sustained recovery, Minarik said, "I don't think we know that yet," but added, "Having two positive numbers in a row is clearly a good thing."

Romer of the Obama administration said in a released statement that an inventory bounce is a normal part of healthy recoveries.

In the first quarter of 2009, production fell by 6.4 percent, so the new numbers represent the fastest three-quarter turnaround since 1981.

Consumer spending rose at an annual rate of 2 percent during the fourth quarter, after a larger increase of 2.8 percent in the third quarter, and exports grew by 18 percent in the fourth quarter.

Though the news was met with rising stock prices, Romer tried to downplay the growth.

"As always, it is important not to read too much into a single report, positive or negative," she said.

Unemployment still hovers at 10 percent. Economists say job growth typically follows economic recovery, calling jobs a trailing indicator.

President Obama is now touring the country to promote new job policies. He has proposed a small-business tax credit for companies that hire or increase pay, and he is calling for the removal of all capital gains taxes on investments in small businesses.

The Bureau of Economic Analysis report is preliminary, and numbers may change as data are added.

The growth rate accounts for inflation.

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