US GDP surges to 5.7pc, led by business

WASHINGTON (AFP) - The US economy roared back to life with a 5.7 percent growth pace in the fourth quarter, led by brisk business spending to restock inventories and for new equipment and software, official data showed Friday. The Commerce Department report on gross domestic product (GDP) showed the strongest growth in six years, even though consumer spending, the traditional driver of economic activity, remained sluggish. The figures showed growth accelerated from the 2.2 percent annualized pace in the third quarter, when the economy expanded for the first time after four quarters of contraction and the deepest recession in decades. Even with the rebound, gross domestic product contracted by 2.4 percent for the full year 2009, the worst performance since 1946, due to the collapse in economic activity in the early part of the year. Still, the robust growth in the October-December quarter was the best since 2003 and significantly better than the 4.7 percent pace expected by analysts. This suggests pretty good momentum heading into the first quarter, said Sal Guatieri, economist at BMO Capital Markets. It suggests the recovery is gaining legs. The White House hailed the new report as the most positive news to date on the recovering economy. Christina Romer, who chairs President Barack Obamas Council of Economic Advisers, welcomed a truly extraordinary change from the first quarter of 2009, when GDP fell at a rate of 6.4 percent. But she cautioned there would be bumps in the road to recovery ahead, and added that while positive GDP growth is a necessary first step for job growth, our focus must remain on getting Americans back to work. The big gains came in large part from businesses ramping up production to rebuild inventories, which economists say may skew the picture of overall activity but is a normal part of recovery. Inventories accounted for 3.39 percentage points of GDP. Stripping out inventory adjustment, real final sales a reflection of the underlying pace of growth was at a 2.2 percent rate, the report showed. GDP, or the output of all goods and services in the economy, was an annualized 14.46 trillion dollars based on the fourth-quarter data. GDP is certainly not as strong as it looks, said Scott Brown, chief economist at Raymond James & Associates. Underlying domestic demand was pretty soft, positive but moderate... Were not seeing a sharp V-shaped recovery. Augustine Faucher at Moodys said the report offered a mixed picture. With so much of the expansion coming from inventories, it remains to be seen if the economy can maintain strong growth in the quarters ahead, and the labor market remains a worry, he said. Growth will weaken in the first half of 2010, before accelerating in the second half of this year and into next. Other factors helping fourth-quarter GDP included auto production, which accounted for 0.61 percentage points of the total. A slowing pace of imports also boosted the growth rate. Capital spending on equipment and software surged 13.3 percent, another significant contributor. Ian Shepherdson at High Frequency Economics called this a key upside surprise but added that we cant see where this comes from and think a downward revision is likely. The data showed exports surged 18.1 percent, making trade a positive contributor to GDP since exports increased more than imports, which were up 10.5 percent. Consumer spending, which is traditionally the key driver of economic activity, rose at a 2.0 percent pace, down from 2.8 percent in the third quarter, and accounted for 1.44 percentage points of GDP. But Guatieri said consumer spending remained on a positive track, pointing out that the third-quarter figure was boosted by the cash for clunkers incentives for automobiles that prompted a surge in car buying. Economists say the key to a more sustainable pace of growth will be a rebound in consumer spending, which accounts for around two thirds of economic activity. Many have argued that the underlying pace of expansion may be too weak to help bring down unemployment, currently at 10 percent.

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