Economic Recovery and Economy and Government & Economic Development

Economy bolts forward 5.7 percent in fourth quarter

January 29, 2010

The economy grew for a second straight quarter from October through December, posting a better-than-expected 5.7 percent annual rate, the fastest quarterly pace since 2003.

The Commerce Department report is the strongest evidence to date that the worst recession since the 1930s ended last year, though an academic panel that dates recessions has yet to officially declare an end to it.

The two straight quarters of growth followed a record four quarters of decline. Still, the expansion in the fourth quarter was fueled by companies refilling depleted stockpiles, a trend that will eventually fade.

Growth exceeded expectations mainly because business spending on equipment and software jumped 13.3 percent — much more than forecast.

The report provided an upbeat end to an otherwise dismal year: The nation's economy declined 2.4 percent in 2009, the largest drop since 1946.

Still, economists expect growth to slow this year as companies finish restocking inventories and as government stimulus efforts fade. Many estimate the nation's gross domestic product will slow to a 3 percent rate in the current quarter and to about 2.5 percent for 2010.

About 60 percent of the fourth quarter's growth resulted from a sharp slowdown in the reduction of inventories as firms began to rebuild stockpiles depleted by the recession.

Excluding inventory changes, the economy would have grown at a 2.2 percent clip, the government said. That's an improvement from 1.5 percent in the third quarter.

Besides business spending on equipment and software, also powering growth in the October-December period was consumer spending, which rose 2 percent.

A steep increase in exports also helped boost growth. The shipment of goods overseas rose 18.1 percent, far outpacing a 10.5 percent rise in imports.

Government spending was actually a slight drag on growth in the fourth quarter: A small increase in federal spending was outweighed by a drop in state and local spending.

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