Strongest economic growth in six years

STRONGEST ECONOMIC GROWTH IN SIX YEARS…. From Fall 2008 through Summer 2009, the nation’s gross domestic product retreated. The four consecutive negative quarters was the longest since the government began keeping track six decades ago.

In the fourth quarter of 2009 — from October to December — the U.S. economy saw its best performance in a long while. There are, however, some caveats to the good news.

The United States economy grew at its fastest pace in over six years at the end of 2009, but a sluggish job market is still souring economists on the sustainability of the recovery.

Gross domestic product expanded at an annual rate of 5.7 percent in the fourth quarter, well above analysts’ expectations. It had grown at an annualized rate of 2.2 percent in the previous quarter.

After struggling for so long, a 5.7% rate looks like an economy that’s finally roaring back to life. The AP added that the growth is “the strongest evidence to date that the worst recession since the 1930s ended last year.”

That’s the good news. The bad news is that the 5.7% number, while obviously heartening, may be a little misleading. Expect to hear a lot about something called an “inventory bounce.”

Many economists … warn against reading too much into a jump in GDP figures for the last three months of 2009. Ed Yardeni, president of Yardeni Research, said that even if there were no change in final sales of goods, the GDP figures would show a 4 percent increase simply because businesses that were emptying their warehouses a year ago are now buying enough goods to keep stockpiles steady.

Still, the 5.7% quarter exceeded several estimates. And with that, here’s another home-made chart, showing GDP numbers by quarter since the recession began in late 2007.

gdp4q.png

* Update: Christina Romer, chair of the White House Council of Economic Advisers, added, that the “inventory bounce, though likely to be transitory, is a normal part of healthy recoveries. As firms’ confidence in the future increases, their desire to run down inventories wanes. This change in behavior is often a powerful force for growth early in a recovery.”