A new government report shows that the U.S. economy grew at the fastest pace in more than six years during the fourth quarter of 2009. The report, which was released on Friday, revealed more specifically that the national gross domestic product rose at a 5.7 percent annual rate. This is much stronger than expected and may be a sign that the economy just may be recovering.
Why the Improvement?
Economists had predicted growth, but not as much as we saw in the fourth quarter. According to a survey from Briefing.com, economists had forecast growth of 4.7 percent. With the economy only rising at a 2.2 percent annual pace in the third quarter of last year, what could have caused the growth?
Some say the improvement was driven by a turnaround in inventories – the supply of goods businesses produce when anticipating sales.
At the end of 2008 and early 2009, many businesses slashed their inventories in fear of the economic conditions. However, according to Friday’s report, the inventory increased drastically in last year’s fourth quarter, mostly in the auto industry.
Does This Mean the Economy’s Improving?
So does this shift in economic growth mean that the economy is improving? Well, not exactly. While inventory is up, personal consumption hasn’t grown as much – two percent to be exact. In other words, companies feel comfortable enough to increase their goods but consumers don’t feel comfortable enough to buy it.
Since consumer spending accounts for more than two-thirds of economic activity, it’s safe to say that the growth of the economy is probably more of a numbers game at this point than a reality.
Have you increased your personal consumption in the last few months?