The administration got some unexpectedly good news on the economic front this morning, although it had to be qualified almost immediately. Annualized GDP in the fourth quarter rose 5.7%, the second quarter in a row of growth in the economy, which makes the recovery official. However, almost two-thirds of it came from a slowdown in liquidation of inventories, leaving an anemic 2.2% of actual growth:
The U.S. economy grew at a faster-than-expected 5.7 percent pace in the fourth quarter, the quickest in more than six years, as businesses made less-aggressive cuts to inventories and stepped up spending.
The Commerce Department said on Friday its first estimate put fourth-quarter gross domestic product growth at its fastest pace since the third quarter of 2003. The economy expanded at a 2.2 percent annual rate in the third quarter.
Analysts polled by Reuters had forecast GDP, which measures total goods and services output within U.S. borders, growing at a 4.6 percent rate in October-December period.
CNBC points out that actual growth is still muted:
Growth was boosted a sharp slowdown in the pace of inventory liquidation, a factor that could mask the strength of the economic recovery from the longest and deepest downturn since the Great Depression.
But even stripping out inventories, the economy expanded at an annual rate of 2.2 percent, accelerating from the 1.5 percent increase in the third quarter, reflecting relatively strong performance from other segments of the economy.
Business inventories fell only $33.5 billion in fourth quarter after dropping $139.2 billion in the July-September period. The change in inventories alone added 3.39 percentage points to GDP in the last quarter. This was the biggest percentage contribution since the fourth quarter of 1987.
These are all preliminary numbers, of course. Commerce first estimated 2009Q3 GDP at a 3.5% annualized rate of growth. Later it had to revise that number downward twice, to the same 2.2% that remains in Q4 after eliminating inventory manipulation. In a month to six weeks, look for that number to slide downward again, although not as much as in Q3, which was an unusually high correction. It also looks like the inventory accounting will be a one-time deal, which won’t help the numbers in the next quarter.
Politically, this could not come at a better time for Obama. He wants to move forward on jobs in the same direction as Porkulus, and these numbers will lend credence to his argument that his policies are the correct cure for the economy. But a 2.2% rate of real growth won’t be enough to get capital back in the game, especially under the business conditions set by the high-spending, high-regulating, high-taxing agenda in Congress.
Next month’s unemployment report will have more impact on the economic policy debate, I’d guess, than the GDP number.