That counts as really good news.
The U.S. economy grew by 5.7% in the fourth quarter of 2009, according to the first take on GDP numbers released by the Commerce Department this morning (January 29).
Economists had been expecting 4.6% growth for the quarter.
If the response of U.S. stock markets looks muted—the Dow Jones Industrial Average is up just 57 points or 0.6% as of 10:15 a.m. ET—put the reaction in this context: China’s markets were down again today with Hong Kong’s Hang Seng Index down 1.2% at the close and in Europe Greece has brought the European Union to the edge of a full on currency crisis. Against that backdrop a gain on the Dow of any sort looks like a rousing cheer.
Let’s dig down a little into the numbers, shall we?
Inventory restocking added 3.4 percentage points to growth in the quarter.
 It’s good to know that companies are rebuilding inventories in hopes of future sales of course but skeptics, myself among them, look at this number and ask how much of it is a result of restocking after companies cut inventories to the bone and how much of this new inventory will get sold quickly.
In other words looking at the very solid inventory numbers still leaves me asking How sustainable is this recovery?
But it’s hard to be skeptical—or at least not to the same degree—about the 13% growth rate for purchases of equipment and software. (With the 15% drop in commercial construction that left total business investment up 2.9% for the quarter.)
Companies don’t spend on capital equipment unless they think business is picking up. And increases in hiring usually follow on growth in capital spending.
Good news for anyone looking to see jobs increasing and unemployment headed down.
This first take on GDP growth will be followed by revisions in February and March.
I will say is the positive I am feeling….. Everyone is starting to get negative means it is usually a great time to buy
I think the GDP figures are smoke and mirrors. End demand will not rachet up sharply anytime soon, people are too economically traumatized. Other shoes have yet to fall. There are any number of seasoned observers like Roubini, Rogers, Prechter, etc who are seeing an ugly 2010 and beyond. Dubai came within an Abu Dhabi-inch of being the next tipping point a la Bear Stearns. Who is next and who will bail them out? Greece? Spain, Ireland? Line forms on the right…
I alittle more information on the inventory component…
http://www.msnbc.msn.com/id/35149367/ns/business-answer_desk/
Jim
The magnitude of the GDP increase was a little surprising. The radio station I was listening to on my drive in Thursday was running their question of the day contest and the question was: One in seven parents have experienced this event since the economic downturn started – what is it? Well, if you happen to be one of the seven [like me], the answer is obvious. Finally after about a dozen failing answers, the right answer came through, and it was: Their adult children had to move back in with them due to either loosing their job or not being able to get a job after graduating from college.
I believe this is yet another symptom of a slower recovery. I know that many companies downsize then find they have to rehire temporary personnel [with experience] at a premium rate just to continue operation. At some point, to really turn the corner toward sustained recovery, companies must take a bet and hire young inexperienced people and gradually rebuild with new blood. Many of us who retired a little earlier than planned would like to stay retired but, the phone rings [not every week but frequently] with an offer for temporary work that is too good to refuse. In many cases companies could get two [or more] young blooded new hires for the price of one old fart like me. Its a vicious cycle that’s hard to break out of but, new blood must be mixed in to achieve a sustained, long term recovery.
I’m not advocating fire experience and replace with new blood. The “new blood” strategy should be balanced as a second priority behind bringing back mid-career employees that must continue to work for several years.
Just my observation.
Thanks
Corrections surrounding uncertainty is much like the climax in a Shakespearian play. Once you have most of the pieces you know where it’s headed. Well, this week was no exception. First, the drama surrounding Bernanke’s reappointment (barely)…done. The markets were jittery about that and carved out a chunk in the markets. Next, the uncertainty about what the president’s state of the union address would contain (or not) provided additional nervousness in the markets. Finally, the GDP report today before the bell today had all eyes and attention, not to mention fingers on the buy or sell buttons! I submit the drama is never over, the fat lady is in a perpetual warm-up state back stage waiting for her cue to sing, and everyone holds their breath waiting for the fickle dagger…”Oh proud death”. All in a week’s work.
What really needs to happen to get improving numbers to jolt the market? People need to buy stuff! Companies need to hire people because people are buying their stuff!…in moderation, without over-extending the credit card. Investors have sold the news all week, mainly, in my view, because the wallet of the consumer has collected so much dust. The drama continues.
So . . . here comes the bounce? More sells next week?
We are hiring in the oil field services business again. We cut too deep during the recession, and now are trying to get some of those good people back on the payroll. There are plans to spend capital for anticipated second half recovery.
I think the easy money has been made. Growth is going to be somewhat subdued, so I’m heavily invested in large cap, multinationals that pay dividends. No matter what happens in the economy, people are still going to want their Doritos (PEP), Coke (KO) or Beer/Spirits (DEO), and shop at the big discounters (WMT).
Jim,
I think what we are seeing is exactly what you talked about last year….. A lot of details have been priced in.
But what hasn’t been priced in is a solid job growth number. I think we are seeing main street recover finally why wall street takes a breather (my guess is it will hold around 1100 while fundamentals get stronger).
A note on the jobs front. I have 5-6 friends who are well educated in the entry level marketing/public relations positions. They could not buy a job over the last 2 years. All of them have either found jobs in the last 30 dates or had 4-5 calls and interviews. This number isn’t going to show up on books for awhile but I think it supports the growth rate and purchases of software. IMO worth noting.
Is anyone seeing the same signs?
I differ on Jim’s view here (not trying to be controversial but need to make my own conclusions) as I think we will see the issues of inefficiency when new hiring starts. Companies have cut so much they they will not be able to grow profits at the same margins. We will see revenue growth but not the same strong profit growth (reverse of what we are seeing now). Again all of this is good for main street, not so good for wall street.
Anyone else on their view?
Jim,
Did you notice the price increases that fed into that GDP number? IF the Fed reads that as an inflation indicator, and with the overall positive aspect of that GDP number, could we possibly be looking at a Fed rate increase as soon as 2nd quarter?