Key driver of fourth quarter growth? Inventories
Almost two-thirds of the growth in the fourth quarter of 2009 is due to businesses restocking their shelves and warehouses.
The economy grew briskly last quarter. According to the second estimate by the Bureau of Economic Analysis, gross domestic product increased at a 5.9% annual pace in the fourth quarter of 2009, a bit higher than BEA’s first 5.7% estimate.Skip to next paragraph
Donald B. Marron is director of economic policy initiatives at the Urban Institute. He previously served as a member of the President's Council of Economic Advisers and as acting director of the Congressional Budget Office.
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As usual, I think the best way to understand this report is to see what sectors contributed the most or least to reported growth:
Almost two-thirds of the growth reflects businesses restocking their shelves and warehouses: inventories accounted for 3.8 percentage points of the overall 5.9% of growth.
Consumer spending grew at a modest 1.7% pace and thus added 1.2 percentage points to overall growth (consumer spending accounts for about 70% of the economy and 70% x 1.7% = 1.2%). That’s down from the previous quarter, when cash-for-clunkers boosted car purchases. Housing investment also slowed, again in the wake of earlier efforts–the tax credit for new home buyers–that had boosted growth in the third quarter.
Business investment in equipment and software showed signs of life, growing at a healthy 18% pace. That added 1.1 percentage points to growth, about half of which was offset by the ongoing decline in business investment in structures.
Government spending fell slightly during the quarter. Stimulus efforts boosted non-defense spending by the federal government, but that increase was more than offset by a decline in defense spending and in state and local spending.
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