Inventories still the growth story in Q4

Much of growth in the fourth quarter of 2009 was due to businesses restocking their inventories.

Donald Marron, Bureau of Economic Analysis
Much of growth in the fourth quarter of 2009 was due to businesses restocking their inventories.

The Bureau of Economic Analysis has released its third look at the economy in the fourth quarter of 2009. The economy grew rapidly in the quarter, but slightly less than previously reported: the new estimate is a 5.6% pace of real GDP growth vs. 5.9% in the prior estimate.

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 1.6% pace and thus added 1.2 percentage points to overall growth (consumer spending accounts for about 70% of the economy and 70% x 1.6% = 1.2%, allowing for some rounding). 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 19% pace. That added 1.1 percentage points to growth, more than half of which was offset by the ongoing decline in non-residential construction.

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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