Friday, January 29, 2010

Time to declare the recession over

The Dept. of Commerce reported this morning that GDP in the U.S. grew at a smart 5.7 percent annual clip in the 4th quarter of 2009. Coupled with 2.2 percent growth reading for the 3rd quarter, it now looks like the Great Recession is over. All that's left now is for the National Bureau of Economic Research and maybe Punxsutawney Phil to make the final announcements.

Growth in the economy, especially growth at 5.7 percent, is good news. However, it only means that the economy has turned the corner--not that it's dug itself out of the hole. Even with two quarters of increases, the real level of GDP has only recovered to the level it was at in the 4th quarter of 2008 and remains below the pre-recession peak. The unemployment recession is also dragging on.

There were also positive and negative signs in the growth figures themselves. In the good news column, the net export position of the U.S. improved (imports and exports both grew, but exports grew faster). Also, the economy achieved growth despite a deceleration in government spending. In the bad news column, a substantial amount of the growth in the 4th quarter was attributable to businesses restocking inventories. Inventory growth could be a drag in future quarters.