5.7% GDP Helping Markets, Comparisons Come With Caveats

By Douglas A. McIntyre Updated Jan 29, 8:56PM EST · Published Jan 29, 8:40AM EST

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It has to sound like the recovery of the century when you hear that the first look at fourth quarter Gross Domestic Product rose to +5.7%. Dow Jones had estimates of 4.8%, while we saw a Bloomberg figure of 4.5%. The PCE Price Index came in at +2.7%, and Bloomberg had estimates at +1.3%. The good news is that two consecutive growth quarters technically ends the recession. The bad news is that the comparison quarter from a year earlier was the quarter where business had ground to a halt. Real final sales of the domestic product are calculated by taking out the change in private inventories from GDP, and that figure increased at an annual rate of only about
2.2%.

This sounds great on the surface, but it is misleading on the scope because of how the comparison period is from Q4-2009 versus the Q4-period of 2008. It was in September of 2008 that business spending fell off a cliff, and the three months of Q4-2008 were effectively a dead period where business failure seemed at least possible for many of the large corporations. That was also the period where banks could not outlay any cash and when the capital markets had been shut down.

Consumer spending added 1.44% to the number, and that is the largest component of GDP. This also shows that the core inflation rate was 1.4% in the fourth quarter, and the chain-weighted GDP price index rose 0.6%. Housing was a contributor of growth as well on all that tax credit buying in October and November, showing a 5.7% gain in Q4.

It is hard to understand where all the deficit spending is going though, as the government spending on the federal level was up only 0.1%. In the Q3 period that figure was up 8%. Business spending rose 2.9% in the fourth quarter, a remarkable difference from the 5.9% drop in the third quarter. International trade is also higher with a 18.1% gain in exports and a 10.5% gain in imports.

JON C. OGG

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.