Diane Swonk, Chief Economist
Feb. 26, 2010 – 7:50 a.m. CT
Fourth Quarter Spurt in GDP Growth Temporary
Revisions to the fourth quarter show that the economy grew at 5.9% in the fourth quarter, up 0.2% from initial estimates. A sharp slowdown in the pace of inventory liquidation was the primary reason for the gains. Investment in new equipment also picked up, driven by an increase in new technology, which will do more to boost productivity than to increase employment. Consumer spending expanded at an anemic 1.7% rate – worse than originally estimated and hardly anything to write home about. Core inflation remained contained.
More importantly, these gains will not be sustained. Indeed, growth looks like it decelerated fairly dramatically in the first quarter – preliminary data suggest that we will be lucky to get 3 percent real GDP growth during the period. This is particularly disturbing given the depth of the recession, and the fact that we should be seeing growth accelerating, rather than decelerating, at this stage of the game.
The Bottom Line: Fed Chairman Ben Bernanke is fully justified in his effort to keep monetary policy accommodative, as growth is clearly more of a problem than inflation. In fact, Bernanke went a step further than he previously had during his testimony to the Senate yesterday, saying that inflation wasn't a near-term or even a medium-term concern.
The forecast for a rocky recovery holds, but the risk of a double dip is still uncomfortably high.
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