GDP report shows US growth surged, but will it last in 2010?
US GDP report marks a strong fourth quarter but economy watchers shouldn't rejoice just yet.
The economy grew at its fastest pace in six years, and Wall Street cheered initially Friday morning by boosting stock prices. But don't break out the noisemakers. This may be as good as the party gets for a while.
After a surprisingly powerful 5.7 percent annualized rise in gross domestic product (GDP) last quarter announced by the Commerce Department Friday, many analysts expect the economy to slow down.
That's because a big change in the inventory cycle, the main source of growth last quarter, is expected to fade in 2010 as businesses finally bring their inventories into line with sales.
Ditto for the federal stimulus: a slow fade. Final sales to domestic purchasers, a more accurate gauge of domestic demand, actually slowed to an annual 1.7 percent rate in the fourth quarter, down from 2.3 percent in the previous quarter, Mr. Ashworth points out.
There were some positive trends in Friday's report: Exports rose 18 percent, and there was a 13 percent rise in business spending on equipment and software.
Also remarkable, according to David Kelly, chief market strategist for JPMorgan Funds, is that the economy grew robustly even though American workers in private industry worked fewer hours than in 2008 and, for the second quarter in a row, their compensation went up by the smallest amount in US Labor Department records that date back to 1979. (See the Labor Deparment report here.)
That's good for business but not so good for workers, whose spending will continue to be constrained by high debt and high unemployment this year.
"The Q4 GDP surge doesn't change the view that growth is likely to be subdued by historical standards, in the 2.5 to 3.0 percent region for 2010," writes Nigel Gault, an economist with IHS Global Insight.