Report Expected to Show Bumper Economic Growth

Friday, 29 Jan 2010 08:06 AM


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WASHINGTON – A keenly anticipated report Friday is expected to show the US economy grew by more than four percent in the final months of 2009, as the world's largest economy struggled to its feet.

The Commerce Department will publish a snap-shot of gross domestic product (GDP), with the consensus forecast of a healthy 4.6-percent expansion in the October-December period, up sharply from 2.2 percent in the third quarter of 2009.

Some analysts see the rate at six percent or higher.

But because of the way the government measures GDP, the overall figure will be skewed by a sharp growth in firms replenishing inventory that withered during the worst of the recession.

"Much of the strength at the end of 2009 stemmed from an inventory boost, growth that is not sustainable in the coming quarters," said Sara Kline at Moody's, who expects a figure of 4.1 percent for the fourth quarter.

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 argue that when stock building is stripped out of GDP, the underlying pace of activity -- which economists term real final sales -- is closer to a rate of two to three percent.

If that pace continues, economists say the expansion will be too weak to help bring down unemployment, currently at 10 percent.

And because high unemployment often leads to consumer caution, spending could be weak, further imperiling a recovery.

"The combination of a weak job market and continued high levels of consumer loan delinquencies makes it hard to envision a lot of punch from consumers, without which it's hard to envision a lot of punch to economic growth," said Joseph Balestrino at Federated Investors.

There is also concern that President Barack Obama's efforts to rein in government spending may freeze a major catalyst for growth.

Avery Shenfeld at CIBC World Markets said the US economy may struggle as the impact of low rates and heavy government spending fade.

"I think growth will be vigorous in the first half of the year but may surprise to the downside with as little as one percent expansion in the second half," he said.

For one thing, Shenfeld said, the housing market that triggered the economic meltdown is still weak and dependent on liquidity from the Federal Reserve and various other programs.

© AFP 2014

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