US Economy Grew by 3.2% in Fourth Quarter

The Commerce Department has just released the initial fourth quarter US GDP growth figure, and the American economy expanded by 3.2% in that period. This result is subject to revision in a few weeks, but that is unlikely to reverse the overall news -- the temporary government action that kept the economy afloat has turned things over to domestic demand. Despite a slack labor market, the US economy has definitely rounded the corner as the economy in 2010 grew 2.9%, the most since 2005.

The key figure released beyond the headline number is the increase in consumer spending, which was up 4.4%. This is hugely significant because consumer spending makes up roughly 2/3 of the total American economy. That 4.4% increase added 3.04% to the GDP growth, which is the largest contribution since 2006.

Within that is an increase in purchases of durable goods of 21.6%, up from 7.6% in the previous quarter. In short, Americans went out and bought cars and refrigerators. Non-durable goods sales were up 5.0% versus 2.5% in the preceding quarter. Services, which have been healthier than durable goods sales, were up 1.7% compared to 1.6%.

Another hopeful sign is the trade result. Exports rose by 8.5% in the fourth quarter, faster than the 6.8% rate of the third quarter. Meanwhile, imports dropped 13.6% in the fourth quarter of 2010 compared with an increase of 16.8% in the third quarter. Consequently, the trade deficit narrowed noticeably, and that added 3.44% to GDP growth. That is the first time that trade had a positive effect on the economy since 2009.

The employment picture remains difficult at best. The unemployment rate is a lagging indicator, and it measures only those actively looking for work and failing to find it. Those who have given up are not counted, and they will return to the hunt when things improve. Consequently, they will keep the unemployment rate up even though jobs are being created. It is estimated that GDP growth must be at 5% for a year to cut the unemployment rate by 1%. America has a long way to go before that occurs.

Nevertheless, 3.2% GDP growth based on growing consumer spending is much better than anything America has seen since Bear Stearns went bust.

© Copyright 2011 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.

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