Jan. 29, 2010 – 7:55 a.m.

An Unsustainable Surge

Real GDP surged at a 5.7% rate in the fourth quarter, up significantly from the mediocre 2.2% pace of growth in the third quarter.

The more important issue is whether those gains can be maintained, which is more than doubtful. The majority of the fourth quarter surge—3.4%—could be attributed to a slowdown in inventory liquidation, which will dissipate now that dealers have restocked in the wake of the Cash for Clunkers program. Exports, consumer spending and residential investment also contributed to growth, albeit to a lesser extent than we saw in the second quarter.

Moreover, the economy lost momentum over the course of the fourth quarter and the stage is set for significantly weaker growth in the first quarter. Preliminary data suggests we could see growth slow to 2.8% pace in the first quarter.

Not Enough! On net, growth remains subdued, despite the year-end surge, and has yet to produce a turnaround in the jobs picture. Be glad that Ben got his tenure as Fed Chair extended, because we are going to need all the help we can get as we struggle to get ourselves out of the hole we dug as we move into 2010 and beyond.

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