GDP Growth Surges Upwards 5.7% – Primarily Driven By Inventory Accumulation

Growth in GDP for the fourth quarter reached 5.7% at an annualized rate. This followed expansion of 2.2% in the third quarter and was the fastest rate of growth since 2003. Growth was generally widespread across different output components. Personal consumption grew 2.0% annualized compared to 2.8% in Q3 and business investment grew 2.9% annualized, the first improvement in over a year.

Despite these gains however, the jump was primarily due to a large improvement in business inventory accumulation. This was likely due to firms correcting over draw downs from prior quarters. Therefore this acts as a temporary effect, and the large gain in Q4 could act as a drag on growth in coming quarters as much of the inventory adjustment will have passed. Real final sales, which measures total consumption of output over the quarter grew at a lesser 2.3%. This is solid growth; however, it remains modest when in comparison to recoveries following past deep recessions where there usually occurs a fast “snap back.” It is yet to be seen what will occur in upcoming quarters; however, if real final sales do not continue to accelerate to a higher growth pace, then output expansion will remain at a level that will only modestly push down unemployment.

annualized % change	Q4 2009	Q3 2009	Q2 2009	Q1 2009	Q4 2008	Q3 2008
Real GDP	5.7	2.2	-0.7	-6.4	-5.4	-2.7
% contribution to real GDP
Consumption	1.4	2.0	-0.6	0.4	-2.2	-2.5
Fixed Investment	0.4	-0.2	-1.7	-6.6	-3.3	-1.3
Residential	0.1	0.4	-0.7	-1.3	-0.8	-0.6
Non-Residential	0.3	-0.6	-1.0	-5.3	-2.5	-0.7
Inventories	3.4	0.7	-1.4	-2.4	-0.6	0.3
Government	0.0	0.6	1.3	-0.5	0.2	1.0
Net Exports	0.5	-0.8	1.7	2.6	0.5	-0.1

10.01.29 (Source: Bureau of Economic Analysis)