:lol:
Mark Levin
First, a disclaimer: 4th quarter GDP may not have been 5.7%. In fact, it's very likely it wasn't. This is just the first estimate, and there are two more revisions to come before the number is final. You may recall that 3rd quarter GDP started at 3.5% in its first estimate, only to be revised downward twice, to eventually settle at a much more mild 2.2% rate.
So let's look at what makes up the 4th quarter's growth. As it turns out, personal consumption actually did worse in the 4th quarter than the prior. It made up 1.4%, versus 2.0% in the 3rd quarter. Within that, goods did worse than services, adding 0.6% and 0.8% growth, respectively. As for those goods, Auto sales actually brought down the quarter's GDP by 0.6%, compared to adding 1.45% in the 3rd quarter.
Gross private domestic investment played a huge role, accounting for 3.8% of the growth. That compares to a measly 0.5% rate in the 3rd quarter. The largest component comes from the change in real private inventories. It made up 3.4% of the 5.7% growth. That's a vastly larger contribution than in the third quarter, when this component made up just 0.7%. Businesses didn't liquidate their inventories as much in the 4th quarter as in the 3rd. This means that final sales made up the other approximately 2.2% of the 5.7% growth.
Another thing to note about the investment contribution: it had more to do with nonresidential than residential fixed investment. Business investment added 0.3%, up from a decline of 0.2% in Q3. Meanwhile residential investment accounted for only 0.1% -- that's down from a 0.4% contribution in the 3rd quarter.
Net exports were positive, accounting for 0.5% of the quarter's GDP. This is also better than Q3, when they resulted in a 0.8% decline.
So this is good news, but, again, we don't know what the final number will actually be. I would also suggest holding off on popping the champagne to celebrate a robust U.S. economy. Most economists predicted a healthy rate of GDP in Q4-2009, but expect that to decline from there to more moderate levels through 2010. And unemployment is also expected to hover near double-digits throughout the year.
The 5.7% number is misleading. Take out the government spending, and it's probably around 4%. Take out the inventory rebuild (a one-shot deal that has probably ended) and the rate is probably around 2%-2.5%. If there were a real recovery going on, rail and truck shipments would be booming. They aren't. In fact, rail shipments are lower now, on an annualized basis, than they were this time last year. Foreclosure rates are starting to rise again.
The economy won't really recover on a sustainable basis until consumers start buying again. Still loaded down with debt, consumers won't start buying until real personal income starts growing again. And personal income levels still stink. From the report:
"Current-dollar personal income increased $119.2 billion (4.0 percent) in the fourth quarter, compared with an increase of $35.1 billion (1.2 percent) in the third.
Personal current taxes decreased $11.7 billion in the fourth quarter, in contrast to an increase of $3.5 billion in the third."
How does that make any sense? How can personal income increase, but taxes decrease? Answer--much of this growth in income was from government money.
The bottom line is that the federal government is propping up much of this economy. This assistance prevented an economic disaster. But it came at the cost of a massive increase in government debt, a rate of borrowing that cannot be sustained much longer. In spite of all this assistance, the root cause of the collapse--massively over-leveraged consumers, businesses, and banks--hasn't been resolved. Until it is, we're stuck in this trap.



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