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January 29, 2010 in Business
Economy grows at fastest pace since 2003
WASHINGTON — The economy’s faster-than-expected growth at the end of last year, fueled by companies boosting output to keep stockpiles up, is likely to weaken as consumers keep a lid on spending.
The 5.7 percent annual growth rate in the fourth quarter was the fastest pace since 2003. It marked two straight quarters of growth after four quarters of decline. Growth exceeded expectations mainly because business spending on equipment and software jumped much more than forecast.
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 grow 2.5 percent to 3 percent in the current quarter and about 2.5 percent or less for the full year.
That won’t be fast enough to significantly reduce the unemployment rate, now 10 percent. Most analysts expect the rate to keep rising for several months and remain close to 10 percent through the end of the year.
High unemployment and stagnant wage growth will likely keep consumers cautious about spending. Wages and benefits paid to U.S. workers posted a scant gain in the fourth quarter. And for all of last year, workers’ compensation rose by the smallest amount on records going back more than a quarter-century.
The economic recovery could falter if consumers, who account for 70 percent of economic activity, lack the income to ramp up spending.
“That’s why there’s so much hand-wringing right now,” said Brian Bethune, chief U.S. financial economist for IHS Global Insight. “Can the economy really sustain this? That’s the big question mark sitting out there.”
With hiring still weak, President Barack Obama has stepped up his focus on job creation. On Friday, he urged Congress to embrace his call for tax incentives to create jobs.
Obama wants to give companies a $5,000 tax credit for each net new worker they hire in 2010. Also, businesses that increase wages or hours for existing workers in 2010 would be reimbursed for the extra Social Security payroll taxes they would pay.
“It’s time to put America back to work,” the president told workers at the Chesapeake Machine Company in Baltimore. But he acknowledged that “while these proposals will create jobs all across America, we’ve got a long way to go to make up for the millions of jobs that we lost in this recession.”
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.
Changes to inventories added 3.4 percentage points to the fourth-quarter growth, the Commerce Department said in its report Friday. Excluding inventories, 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.
Consumer spending rose 2 percent, down from a 2.8 percent rise in the third quarter. It added 1.4 percentage points to GDP growth.
A steep increase in exports also helped boost growth last quarter. The shipment of goods overseas rose 18.1 percent, far outpacing a 10.5 percent rise in imports. Net exports added 0.5 percentage point to GDP.
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.
Still, federal government spending is likely to pick up and add to growth in the first quarter, Bethune said.
Business spending will likely boost economic growth for several quarters, Bethune said, though not likely enough to make up for sluggish consumer spending. Many companies are upgrading computers, cell phones and machinery as their equipment needs to be replaced just to maintain current levels of production.
In addition, many businesses have healthy balance sheets and don’t need to pay off the large debts that households are struggling with, Bethune added.
For now, the growing economy is benefiting companies up and down the supply chain. Ford Motor Co. this week reported higher fourth-quarter sales and its first annual profit in four years, as it recovers from the devastating downturn the auto industry.
Ford’s “recent success has benefited us,” said Tom Schumann, general manager of EC Kitzel & Sons Inc., a small cutting tool fabricator based in Cleveland, Ohio.
The company, which has 30 employees, bought a new machine tool in December and hired a new worker to run it, the company’s first hire since last spring. Still, many of the company’s suppliers are struggling.
“I’m not totally convinced we’re out of the woods yet,” Schumann said, referring to the economy.
Friday’s report is the first of the government’s three estimates of gross domestic product and is likely to be revised. The government initially estimated third quarter growth was 3.5 percent, which was later revised down to 2.2 percent. The next estimate will be released Feb. 26.
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. That’s the first annual decline since 1991.
© Copyright 2010 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Northwest wheat 
liarsinnews on January 29 at 8:34 a.m.
Tell that to the folks that are unemployed. Those kinds of statements are processed hay and corn through the bull.
lewis8457 on January 29 at 8:45 a.m.
it seems every day we get a report it is getting better. It isn’t, OK? report on something else, please. The economy is sliding into ruin.
spokanecommunistparty on January 29 at 9:14 a.m.
Everything was ” getting better” in the USSR too, right before the collapse. If our government remains unreformable and “stays the course” of dubya, than we are on a course of destruction.
leekinny on January 29 at 9:16 a.m.
We must get our jobs back from overseas. Manufacturing is important to the national security of a nation. We won WWII not just because of our troops but also because Rosie the Riveter outproduced Germany. That’s why it was important to keep the car companies going.
Obama’s plan to tax companies that move out of the US and give tax breaks to those who stay is a fair start.
We should also buy American as much as is possible.
bdr on January 29 at 9:46 a.m.
two statements apply here.
living on Borrowed money
living on Borrowed time
leekinny on January 29 at 10:31 a.m.
Arguing, and voting against the workers of this nation is an insult to the resourcefulness and ingenuity of the American spirit. Why anyone would bet against the can-do spunk of Americans is hard to
understand. But, the Republican party is dominated by those who are doing this very thing. It’s a detriment to what we can all achieve.
empyrius on January 29 at 11:41 a.m.
Can a brother get a stimulus package over here?!? Why are government agencies and Wall Street sorcerers the only ones who get free money?!?
Schrauf on January 29 at 12:02 p.m.
I won’t debate the prediction of eventual doom, but it is common knowledge unemployment is a trailing indicator and will only improve significantly when the economy has been strong for a long time. It takes patience, not magic. There is no magic.
horse_feathers on January 29 at 3:13 p.m.
No magic! no magic! But B HO promised that unemployment would not go above 8% if we threw stimulus money at the problem and its been a year now.
bdr on January 29 at 3:15 p.m.
The Republican party is to blame…….they civilize more cannibal nations who in turn send their cheap junk and cars….as repayment for freedom……..(their freedom)
the manufacturing base is so large now in 5 nations we could build stuff for enough for another planet.
(we cant afford to rebuild more 3rd worlds) it costs our workers to much.
horse_feathers on January 29 at 4:23 p.m.
bdr, What are you smoking?
westside on January 29 at 6:45 p.m.
Ya, Spokane is hopping with new $20 an hr jobs…..people are going crazy with all the new jobs in Spokane….lol
Dazzeetrader11 on January 29 at 7:16 p.m.
Faked and manipulated data. How many jobs did Obama save? Well he say 2 million. Impossible to verify but he says it. He’ll say anything to get elected again. Shell game.
If things aren’t better, believe your eyes..they aren’t. If they say unemployement is imporving but you don’t see it, it’s not happening. GDP can be presented in many ways to look better.
Diana on January 29 at 7:25 p.m.
A whole year to correct eight years of policy that allowed Wall Street and the banks to nearly bring down the economy?
Albert on January 29 at 7:43 p.m.
In all truth and political speak, Chief Inspector Dreyfus had a true grasp of reality when he said to Inspector Jacques Clouseau “Every day, in every way, I’m getting better and better.” The Chief Inspector in the White House is telling us the very same thing and like Inspector Clouseau, we all believe him…don’t we?
Scoutster on January 30 at 2:37 p.m.
It might be hard for people who only listen to Faux News to understand, but the economic forces crushing us today were a generation in the making. they were not the result of Democratic or Republican policies by themselves (although to varying degrees they helped or hurt the cause), but mostly the result of our own greed and selfishness, and we elected people who fed those base instincts. Why didn’t we conquer oil dependency or job off-shoring years ago? We are to blame.