Best economic growth in six years

[Fury]

NEW YORK (CNNMoney.com) -- The U.S. economy grew at the fastest pace in more than six years during the fourth quarter of 2009, according to a government report Friday.

The nation's gross domestic product, the broadest measure of economic activity, rose at a 5.7% annual rate in the fourth quarter. That was much stronger than expected and provides another sign that a recovery in the economy is taking hold.

Economists surveyed by Briefing.com had forecast growth of 4.7%.

The growth in the fourth quarter was the highest since the third quarter of 2003. The economy rose at 2.2% annual pace in the third quarter of last year.

But even with the strong growth in the second half of 2009, the economy shrunk by 2.4% last year. That was the biggest drop in 63 years and first annual decline for the economy since 1991.

The GDP report does not mark an official end of the recession. That determination will be made by the National Bureau of Economic Research, and that group typically waits months -- if not more than a year -- to declare when recessions ended and began.

But two straight quarters of economic growth is typically a sign of a recovery, and most economists agree that the recession ended at some point in the middle of 2009. The Federal Reserve even used the word "recovery" in the statement following its latest meeting earlier this week.

Much of the improvement was driven by a turnaround in inventories, the supply of goods that businesses produce in anticipation of sales. Businesses slashed inventories in late 2008 and early 2009 due to concerns about worsening economic conditions.

But 3.4 percentage points of growth in the fourth quarter came from the change in inventories, according to Friday's report. A pickup in auto production was a significant part of the inventory turnaround, even though auto sales themselves only rose modestly.

An 18% jump in the value of exports also played a major role in the economy's rebound, contributing nearly 2 percentage points of growth.

But the U.S. consumer was somewhat of a bystander in the fourth quarter, as personal consumption grew at only a 2% annual rate in the period. Spending by consumers accounts for more than two-thirds of economic activity.

Sung Won Sohn, economics professor at Cal State University Channel Islands, said there was good news in the report, but cautioned that the economy is unlikely to keep growing at such a strong pace.

"The not-so-good news is that most of the growth came from temporary factors such as inventories and government stimulus which can't be sustained," he said.

Federal spending on stimulus does not show up on any one line of the GDP report. In fact, government spending contributed nothing to growth by itself. But Sohn said it is clear that tax cuts and spending by businesses that received stimulus dollars helped to feed growth in the third and fourth quarters. To top of page

http://money.cnn.com/2010/01/29/news/economy/gdp/index.htm?hpt=T1

[Soul Crusher]

Hysterical, and you believe this why BF?

Last report was revised downward by 37% remember?  

Also, when you add in the govt spending, the fact that this is all inventory build-up, the increasing UE, foreclosures increasing, wages increasing by least amount on record, the worst home market in 16 years, you dont think these numbers are just a wee bit strange?

Sort of like the Chinese GDP numbers reporting 9% growth every quarter.  Its a complete farce.  

Here is Dennigers' take.
________________________ ________________________ _____________

Posted by Karl Denninger in Macro Economics at 09:04

GDP: There's Your Inventory Bounce
4th Quarter GDP is out with a stunning 5.7% (annualized) rate of increase.  Let's look inside and see if the numbers make sense.

The increase in real GDP in the fourth quarter primarily reflected positive contributions from private inventory investment, exports, and personal consumption expenditures (PCE).

The first two are not a big surprise.  The latter, however, is dangerous to rely on.

As I have repeatedly pointed out we have over the last 18 months added about $500 billion (annually) in transfer payments to the federal budget.  This counts in the GDP report as PCE, but is not actual output any more than I am richer if I go to the bank and borrow $20,000 on my credit card.

If one was doing GDP as a "balance sheet" you'd have to subtract the addition in liabilities (debt) from the money spent, but of course GDP isn't computed that way.  This results in a nutty overstatement of GDP when it is used as a measurement of economic health, which of course is how all the so-called "economists" use it.

Indeed, that $500 billion is an annualized distortion of a whopping 3.57% of the entire economy!

There are some problems in this report as well.  The claim is made that real federal government expenditures and investment was flat (0.1% increase) .vs. an 8% annualized rate of change in the last quarter.  I'm not sure I believe that either - but it may in fact be true, in that the aforementioned $500 billion diversion could reasonably be "all there is" in terms of what the government can and does spend.  I'm particularly skeptical of this number after seeing the durables report and change in defense spending - those two numbers don't add correctly, and defense spending has been up strong all year (much to the chagrin of those who thought Obama would be drawing down our military spending and bringing the troops home!)  State expenditures are down as expected (the states are broke!) but despite all the bleating about lack of money the change is small.  You'd think there would be real cutting going on given the screams of distress - nope!

Export growth continued as did imports, but the import growth rate slowed dramatically from the third quarter.  The latter mostly appears to account for inventory additions, which was 3.39% of the GDP increase - about what I expected.  While this is additive to GDP it is not indicative by itself of economic strength.  More is required, specifically, we need to see that 3.39% taken up in final demand in coming quarters, otherwise it turns into a millstone around the neck of merchants that will instead destroy profit margins.  Nonetheless industry appears to have "taken the bet" on an economic recovery that actually takes hold.

The amusing part of the report is found in the personal income and outlays section:

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.

Got it?  People aren't earning the money, the government is handing it out.  You don't pay taxes on government handouts, for the most part.  There was a potential "improvement" signal in the third quarter related to tax liabilities increasing, but that has now reversed - hard - which throws a big fat rock at the concept of employment turning in any meaningful way.  Instead the "current dollar income" is being borrowed and given away by the government through unemployment extensions and other forms of handout.

Non-residential structures (commercial R/E) plummeted by 15.4% yet residential is claimed to have increased.  Homebuyer tax-credit incentives?  Probably.

Looking at the breakdown there are some warnings: Utility expense appears to be comparatively strong, which looks to be the lion's share of the Q4 household service change, with the rest being almost all in health care costs.  This is not a good trend when an increasing percentage of personal income is comprised of government handouts.

Non-durable purchases were up significantly at bars and restaurants (normal during the 4th Quarter - look at 06 and 07) while gas and energy purchases were down in Q3 and Q4 - a not-good change considering the trajectory of prices for both (demand is decreasing significantly, as prices have been up a LOT, so if gross sales are slightly down.....)

The revisions to this report should be interesting.  Remember that the last quarterly GDP report was revised downward some forty percent over time.  I've archived this copy privately on The Market Ticker so as to preserve any "accidents" in this regard.

Bottom line: The market liked it (although the net change after thinking about it for a while was pretty much a non-event - we're up a whole two S&P points a half-hour after release) but most of the improvement was due to inventory build and transfer payments from the government (and the government borrowed the money), not actual earned personal income.

[loco]

Hysterical, and you believe this why BF?

Got it?  People aren't earning the money, the government is handing it out.  You don't pay taxes on government handouts, for the most part.  There was a potential "improvement" signal in the third quarter related to tax liabilities increasing, but that has now reversed - hard - which throws a big fat rock at the concept of employment turning in any meaningful way.  Instead the "current dollar income" is being borrowed and given away by the government through unemployment extensions and other forms of handout.

This is what's happening in Venezuela as well, and this too is how Venezuela's "economic growth" is being measured.    

[Fury]

Hysterical, and you believe this why BF?

Last report was revised downward by 37% remember?  

Also, when you add in the govt spending, the fact that this is all inventory build-up, the increasing UE, foreclosures increasing, wages increasing by least amount on record, the worst home market in 16 years, you dont think these numbers are just a wee bit strange?

Sort of like the Chinese GDP numbers reporting 9% growth every quarter.  Its a complete farce.  

Here is Dennigers' take.
________________________ ________________________ _____________

Posted by Karl Denninger in Macro Economics at 09:04

GDP: There's Your Inventory Bounce
4th Quarter GDP is out with a stunning 5.7% (annualized) rate of increase.  Let's look inside and see if the numbers make sense.

The increase in real GDP in the fourth quarter primarily reflected positive contributions from private inventory investment, exports, and personal consumption expenditures (PCE).

The first two are not a big surprise.  The latter, however, is dangerous to rely on.

As I have repeatedly pointed out we have over the last 18 months added about $500 billion (annually) in transfer payments to the federal budget.  This counts in the GDP report as PCE, but is not actual output any more than I am richer if I go to the bank and borrow $20,000 on my credit card.

If one was doing GDP as a "balance sheet" you'd have to subtract the addition in liabilities (debt) from the money spent, but of course GDP isn't computed that way.  This results in a nutty overstatement of GDP when it is used as a measurement of economic health, which of course is how all the so-called "economists" use it.

Indeed, that $500 billion is an annualized distortion of a whopping 3.57% of the entire economy!

There are some problems in this report as well.  The claim is made that real federal government expenditures and investment was flat (0.1% increase) .vs. an 8% annualized rate of change in the last quarter.  I'm not sure I believe that either - but it may in fact be true, in that the aforementioned $500 billion diversion could reasonably be "all there is" in terms of what the government can and does spend.  I'm particularly skeptical of this number after seeing the durables report and change in defense spending - those two numbers don't add correctly, and defense spending has been up strong all year (much to the chagrin of those who thought Obama would be drawing down our military spending and bringing the troops home!)  State expenditures are down as expected (the states are broke!) but despite all the bleating about lack of money the change is small.  You'd think there would be real cutting going on given the screams of distress - nope!

Export growth continued as did imports, but the import growth rate slowed dramatically from the third quarter.  The latter mostly appears to account for inventory additions, which was 3.39% of the GDP increase - about what I expected.  While this is additive to GDP it is not indicative by itself of economic strength.  More is required, specifically, we need to see that 3.39% taken up in final demand in coming quarters, otherwise it turns into a millstone around the neck of merchants that will instead destroy profit margins.  Nonetheless industry appears to have "taken the bet" on an economic recovery that actually takes hold.

The amusing part of the report is found in the personal income and outlays section:

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.

Got it?  People aren't earning the money, the government is handing it out.  You don't pay taxes on government handouts, for the most part.  There was a potential "improvement" signal in the third quarter related to tax liabilities increasing, but that has now reversed - hard - which throws a big fat rock at the concept of employment turning in any meaningful way.  Instead the "current dollar income" is being borrowed and given away by the government through unemployment extensions and other forms of handout.

Non-residential structures (commercial R/E) plummeted by 15.4% yet residential is claimed to have increased.  Homebuyer tax-credit incentives?  Probably.

Looking at the breakdown there are some warnings: Utility expense appears to be comparatively strong, which looks to be the lion's share of the Q4 household service change, with the rest being almost all in health care costs.  This is not a good trend when an increasing percentage of personal income is comprised of government handouts.

Non-durable purchases were up significantly at bars and restaurants (normal during the 4th Quarter - look at 06 and 07) while gas and energy purchases were down in Q3 and Q4 - a not-good change considering the trajectory of prices for both (demand is decreasing significantly, as prices have been up a LOT, so if gross sales are slightly down.....)

The revisions to this report should be interesting.  Remember that the last quarterly GDP report was revised downward some forty percent over time.  I've archived this copy privately on The Market Ticker so as to preserve any "accidents" in this regard.

Bottom line: The market liked it (although the net change after thinking about it for a while was pretty much a non-event - we're up a whole two S&P points a half-hour after release) but most of the improvement was due to inventory build and transfer payments from the government (and the government borrowed the money), not actual earned personal income.

Haha, I just wanted to see your response.

[Option D]

Haha, I just wanted to see your response.

GOOD ONE BROHAM..

[kcballer]

Wouldn't that be obvious considering there was a trillion dollar stimulus?  That govt money was still floating around propping up the system?  Isn't one of the purposes of the stimulus to help keep the economy afloat i.e. growing in numbers?  Seems to me that's what it's doing and as long as it keeps doing it and holding off a depression.  Wouldn't you say the stimulus is working 333 in that respect?

[grab an umbrella]

Wouldn't that be obvious considering there was a trillion dollar stimulus?  That govt money was still floating around propping up the system?  Isn't one of the purposes of the stimulus to help keep the economy afloat i.e. growing in numbers?  Seems to me that's what it's doing and as long as it keeps doing it and holding off a depression.  Wouldn't you say the stimulus is working 333 in that respect?

Whats the point of the "numbers" looking good if it isn't real growth?

[kcballer]

Whats the point of the "numbers" looking good if it isn't real growth?

Consumer confidence for one.  Like i said one of a points of the stimulus was to keep the numbers and economy of America chugging along until business could recover.  Keep the lines of credit open for business and personal.  It would appear to be doing that.

[GigantorX]

Wouldn't that be obvious considering there was a trillion dollar stimulus?  That govt money was still floating around propping up the system?  Isn't one of the purposes of the stimulus to help keep the economy afloat i.e. growing in numbers?  Seems to me that's what it's doing and as long as it keeps doing it and holding off a depression.  Wouldn't you say the stimulus is working 333 in that respect?

"Keep it afloat"? Do you think this economy looks like it is "afloat"? Wait for the revisions, that will tell more of the story.

Consumer Credit is still contracting at a quick pace.

Still losing jobs.

Housing is still in the dumps and took a big 10% dive in December.

Wages down.

Once the Stimulus is over and done and the fake growth is stripped away, what will we be left with? The de-leveraging will still continue, there is still to much debt and now U.S. consumers are using more and more money to save and pay down debt while at the same time making less, spending less etc. Add to the amount of debt our govt. has added in the past year and you get a big bucket of not so good.

1 Trillion dollars in stimulus is a little Neosporin and maybe a band-aid on this nations gaping wound. There will be more stealth stimulus on the way in the form of a "Jobs Bill", whatever the fuck that means or this or that.

But hey, it sure worked for the Japanese, right?

[shootfighter1]

But it's likely a temporary bump, not sustainable growth.  That's the main issue.
Granted, it's good news...but probably an overestimated # based on the reasons above.

[kcballer]

But it's likely a temporary bump, not sustainable growth.  That's the main issue.
Granted, it's good news...but probably an overestimated # based on the reasons above.

It's not meant to be sustainable, it's meant to be a temporary fix to keep the economy afloat until business can start churning again.  You can disagree with whether or not it should have been implemented in the first place but you can't fight that it's working in keeping things afloat right now. 

[dario73]

GOOD ONE BROHAM..

Too bad for you and the rest of America that 333386 is correct.

You voted for Obama, right? You feel stupid now, dont you?

[loco]

It's not meant to be sustainable, it's meant to be a temporary fix to keep the economy afloat until business can start churning again.  You can disagree with whether or not it should have been implemented in the first place but you can't fight that it's working in keeping things afloat right now.  

A person could borrow $200k to keep their personal finances and extravagant life style "afloat" for a while.  And that would "work" in keeping their finances and extravagant life style "afloat" for a while, but eventually the bill will come and it will have to be paid or that person will end up bankrupt, broke and on the street.

[kcballer]

A person could borrow $200k to keep their personal finances and extravagant life style "afloat" for a while, but eventually the bill will come and it will have to be paid or that person will end up bankrupt, broke and on the street.

Potentially.  Unless said person got their feet under them in time then they could pay it back could they not?   

[quadzilla456]

Potentially.  Unless said person got their feet under them in time then they could pay it back could they not?   

You would need new humans to do that because the existing humans that caused this mess are still alive and in control. Without this little but important change its not going to happen.

[shootfighter1]

I wouldn't argue that the number is good and represents a temporary improvement in production but I think the number is also somewhat misleading.

[shootfighter1]

I don't know how much the stimulus did vs the market cycle.
I still don't think the stimulus had enough bang for the buck, the amount of debt it created is astounding.  $862 billion dollars! (CBO said it was $75 billion more than the 787)

[Soul Crusher]

It's not meant to be sustainable, it's meant to be a temporary fix to keep the economy afloat until business can start churning again.  You can disagree with whether or not it should have been implemented in the first place but you can't fight that it's working in keeping things afloat right now. 

KC - here is a good start for you. 

It will at least help you from embarassing yourself so badly on these issues. 

[kcballer]

You would need new humans to do that because the existing humans that caused this mess are still alive and in control. Without this little but important change its not going to happen.

I think they are called babies quadzilla.  You and your boyfriend may not be able to have them but females can 

[loco]

Potentially.  Unless said person got their feet under them in time then they could pay it back could they not?  

Not likely!  Attitude would have to change, spending habits would have to change, life style would have to change, sacrifices would have to be made, the person's life span would have to be extended.  Not gonna happen.  Borrowing another $200K to pay back the original loan doesn't count.  

[Bindare_Dundat]

But hey, it sure worked for the Japanese, right?

Nuff said.

Maybe if they throw an infinitillion dollars at the economy we can get a perpetual growth in gdp?

[quadzilla456]

I think they are called babies quadzilla.  You and your boyfriend may not be able to have them but females can 

Haha nice try. Are you fond of balls, baller?

[GigantorX]

Nuff said.

Maybe if they throw an infinitillion dollars at the economy we can get a perpetual growth in gdp?

Wow, it took this long for someone to actually respond to my plea to look at historical precedence. The Japanese went through something very similar to what we are going through. They did the never ending bailouts, infinite govt. spending, infrastructure, crazy work rules, debt, debt, debt and more debt and zero % interest rates for the last 2 decades.

The result? Pretty much a recession for 20 years....which some would call a depression.

But hey, their economy is still "afloat"....

[GigantorX]

Wow, it took this long for someone to actually respond to my plea to look at historical precedence. The Japanese went through something very similar to what we are going through. They did the never ending bailouts, infinite govt. spending, infrastructure, crazy work rules, debt, debt, debt and more debt and zero % interest rates for the last 2 decades.

We are doing pretty much the exact same thing. Ignoring the structural problems and instead pumping money out and keeping this thing "afloat", which pretty much means the U.S. to be treading water in the deep end of the pool with or heads barley above the water line for the next 5-10-15 years. Give the flat-lined patient another shot of adrenaline and crack cocaine because you have to keep him "alive".

The result? Pretty much a recession for 20 years....which some would call a depression.

But hey, their economy is still "afloat"....

[grab an umbrella]

Gigantorx, you and billy are my two favorite posters on the politics board.  The "dependency" government has been tried time and time again, and has failed in every instance.  We need some shock and awe to get back to a solid foundation.