- The Washington Times - Friday, January 29, 2010

The economy grew at a breath-taking 5.7 percent pace in the final quarter of last year as it zoomed out of recession, the fastest growth in more than six years, the Commerce Department reported Friday morning.

The gains in output were due overwhelmingly to a one-time event — a slowdown in the massive liquidation of overstocked goods by businesses that occurred through most of the year, which accounted for 3.39 percent or nearly two-thirds of the growth registered during the quarter, the department said.

The surge in growth offset some of the deep decline in the economy in the first half of 2009, but did not prevent the economy from contracting by 2.4 percent for the full year — its biggest drop since 1946. Growth started returning to the economy in the summer quarter, when it grew by 2.2 percent, and then surged by more than twice that amount in the final quarter, the department estimated.

“It’s a big headline” number, said Boris Schlossberg, an analyst at Global Forex Trading in New York. “We are seeing a spike up in many markets. But after the initial impact, one has to rethink this number, and note that some underlying drivers to growth are still underperforming. Most of the jump in the headline figure came from a rebuild in inventories.”

Wall Street stocks initially jumped on the more robust than expected growth, but then resumed a month-long decline as investors delved more deeply into the report and realized the strong growth was unsustainable. The Dow Jones Industrial Average ended down 53 point at 10,067, culminating a loss of 3.4 percent during the month.

Underlying growth in the economy was tepid, according to the department. Spending by consumers — who normally fuel about 70 percent of economic activity — was subdued, growing at a 2.2 percent rate, down from 2.8 percent in the summer quarter. That reflected the end of the popular “cash for clunkers” auto trade-in program.

Government spending — which was an important underpinning for the economy throughout the year — also slowed sharply, posting a 0.1 percent gain after surging by 8 percent in the summer quarter as funding from the $862 billion stimulus program reached a peak, the department said. State and local spending actually decreased by 0.3 percent.

The revival in the housing market also waned during the quarter, with spending on home construction rising by 5.7 percent after skyrocketing by 19 percent in the summer. The housing gains were largely spurred by a temporary federal tax credit for first-time homebuyers.

Economists emphasized that the boost to growth from government stimulus and the one-time turnaround in business inventories will not help the economy much this year, and it will only be able to grow at the lower rates that are sustainable in the long run. The impact of the congressional stimulus plan, in particular, will fall off noticeably in coming months, they said.

“It’s very solid and gives us a running start into the second half of this year, when we can’t rely on government stimulus,” said Jack Ablin, chief investment officer at Harris Private Bank. “That’s part of the plan, to get us moving as fast as possible so when life support is removed we’ll have a pulse.”

One bright spot in the report was business spending, which came back to life at the end of the year, with spending on computers and other equipment jumping by 13.3 percent. But the commercial construction market remained in a deep recession, with spending falling by 15.4 percent.

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