Friday, January 29, 2010

Roaring Back?

Real GDP grew at an annual rate of 5.7% in the last three months of 2009, according to the BEA's "advance" estimate. That puts growth for the year at -2.4%. One note of caution, however, is that of that 5.7% rate of increase, 3.4% is attributable to inventories. Firms were still reducing inventories in the fourth quarter, but at a much slower pace than the third quarter - real inventory 'investment' was -$33.5 bn in Q4, vs. -$139.2 bn in Q3 (measured in 2005 dollars) - but a smaller negative number is an increase. At Econbrowser, James Hamilton has the best explanation I've seen of how to interpret this.

Consumption increased at a 2% annual rate. Both exports and imports grew, but exports grew more, so net exports made a positive contribution. Overall, government purchases made a slight negative contribution - while federal nondefense spending increased, defense spending and state and local government spending were down. The most hopeful sign is that business investment is finally increasing - equipment and software investment rose at a 13.3% annual rate.

Measured by the GDP deflator, the inflation rate was 0.6% in the fourth quarter, and 1.2% for the year.

Real Time Economics has a roundup of reactions. Brad DeLong notes that unemployment is higher than Okun's law implies it should be.

Of course, these estimates are subject to revision - the BEA will release an update on Feb. 26.

(N.B.: in the graph, the recession shading ends in July, but the NBER has not yet officially declared the business cycle trough).

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