GDP Provides Investors With Welcome Good News

After a run of bad economic news on the consumer confidence, housing, manufacturing, and jobs front, investors got some much needed good news.  The Commerce Department reported that GDP in the fourth quarter of 2009 increased by 5.9 percent, higher than the 5.7 percent originally reported.  This is the second estimate, and a revised one will be released in March after the government gets more data to analyze.

Personal consumption, according to the Commerce Department, increased by 1.7 percent.  Real estate was also a driver of GDP growth, with non-residential real estate growing by 6.5 percent and residential real estate climbing by 5.0 percent.  Equipment and software sales surged by 18.2 percent.  And exports jumped by 22.4 percent.  Imports, which take away from GDP, also increased, climbing by 15.3 percent.

Many have said that it's government spending that propelling the economy forward.  However, that doesn't appear to be the case, at least in the fourth quarter.  Spending by the federal government was essentially flat, dropping by 0.1 percent.  And spending by state and local governments decreased by 2.0 percent.

Analysts had expected that the government's revision for fourth quarter GDP growth would come in at the 5.7 percent that was initially estimated.  All estimates were for growth, ranging from 4.2 percent to 6.3 percent.  The actual growth rate was the best in six years, according to the Commerce Department.

An economist at MF Global in New York said that a lot of the growth seen in the fourth quarter was driven by businesses replenishing their inventories.  However, he said that inventory replenishment still can help boost GDP and that "a clear pickup in the labor market" is required to for sustained GDP growth.  That pickup in hiring, he said "is coming."

The big cloud over the economy is jobs.  We are seeing many things fall in place, but until the jobs situation gets better, it's difficult to see how the economy can grow rapidly.  And even if employers start to add to their payrolls, with over eight million jobs lost since the recession began in December 2007, it will take a long time before we get back to the lower unemployment rates we saw in the middle of the decade.

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