This past week was quite interesting, as well as volatile. On Monday, we had a huge gap up right int...
Great news on U.S. GDP even if a traumatized stock market can manage only a small gain
01/29/2010 10:37 am EST
The U.S. economy grew by 5.7% in the fourth quarter of 2009, according to the first take on GDP numbers released by the Commerce Department this morning (January 29).
Economists had been expecting 4.6% growth for the quarter.
If the response of U.S. stock markets looks muted—the Dow Jones Industrial Average is up just 57 points or 0.6% as of 10:15 a.m. ET—put the reaction in this context: China’s markets were down again today with Hong Kong’s Hang Seng Index down 1.2% at the close and in Europe Greece has brought the European Union to the edge of a full on currency crisis. Against that backdrop a gain on the Dow of any sort looks like a rousing cheer.
Let's dig down a little into the numbers, shall we?
Inventory restocking added 3.4 percentage points to growth in the quarter.
It’s good to know that companies are rebuilding inventories in hopes of future sales of course but skeptics, myself among them, look at this number and ask how much of it is a result of restocking after companies cut inventories to the bone and how much of this new inventory will get sold quickly.
In other words looking at the very solid inventory numbers still leaves me asking How sustainable is this recovery?
But it’s hard to be skeptical—or at least not to the same degree—about the 13% growth rate for purchases of equipment and software. (With the 15% drop in commercial construction that left total business investment up 2.9% for the quarter.)
Companies don’t spend on capital equipment unless they think business is picking up. And increases in hiring usually follow on growth in capital spending.
Good news for anyone looking to see jobs increasing and unemployment headed down.
This first take on GDP growth will be followed by revisions in February and March.
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