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The world’s leading economy expands the most in six years
Fri, Jan 29 2010, 14:13 GMT
by ecPulse.com analysis team
The U.S Commerce Department showed that the economy of the United States expanded in the fourth quarter of 2009 by 5.7% as reported in the advanced GDP reading whereas economical conditions improved significantly throughout the past period to validate that the U.S economy shook off the worst financial crisis since the Great Depression sealing off 2009 on growth.
The advanced reading for the fourth quarter GDP estimate came in to show that the economy expanded by 5.7% which was projected by markets to reach 4.7%, and the previous 2.2 percent, nevertheless challenges still standing in front of economical recovery such as high unemployment and tight credit conditions not to mention inflationary threats, therefore revision for this reading is highly projected in the upcoming reports.
It is projected that these challenges will even trim off growth in the fourth quarter but the pivot point will be consumers spending in this quarter, we saw that the final GDP reading for the third quarter showed that personal consumption rose by 2.8% coming in below the previous and the expected 2.9% meanwhile consumer consumption in the fourth quarter rose by 2.0% coming in below the previous reported estimate of 2.8% while higher than market expectations of 1.8% giving the fact that holiday season did not support spending as hoped where it was seen previously throughout the Retail Sales report that declined unexpectedly.
The commerce department report showed that different parts and sectors of the economy sent mixed signs over their performance throughout the fourth quarter as some improved while some still can’t find stability in conditions, sub indices showed that Durable Goods dropped by 0.9% compared with the previous rise of 20.4 percent, while the Nondurable Goods rose by 4.3% from 1.5%, in addition Services rose by 1.7% in the GDP reading from 0.8%
Personal Consumption added 1.44% to the GDP compared with the previous 1.96%, meanwhile Net exports added 0.50 percent to the GDP compared with the previous -0.81%, in addition import slashed -1.41 percent but enhanced from the previous -2.59 percent, finally government consumption slashed 0.02% from the previous added 0.55 percent in the third quarter of this year. The change in inventories reached -$33.5 billion in the fourth quarter coming in better than the previous reported estimate of -$139.2 billion while Net exports eased to -$341.1 billion from -$357.4 billion.
High unemployment continues to weaken consumer spending and consumption whereas unemployment reached in the month of November a 26 year record high of 10.0% but despite the recent improvement witnessed in the labor sector, unemployment along with tight credit conditions and diminishing wealth will continue to affect spending and drive growth lower as spending accounts for 70% of GDP thus revisions to this strong growth is highly expected.
The government stimulus plans helped support economical conditions in the housing, financial and manufacturing sector, but the biggest contributor to the strong growth witnessed in the fourth quarter came from investments whereas the Gross private domain investments rose by 3.83 percent from the previous 0.54 percent while fixed investments rose by 0.43% from the previous -0.15 percent.
The report showed that GDP price index in the fourth quarter rose by 0.6% compared with the previous rise of 0.4% but below market expectations of 1.3 percent, meanwhile the Fed Favorite indicator for inflation; the Core PCE rose above the expected 1.3% and the previous 1.2% to reach 1.4% thus the Federal Reserve projection still stands of subdued over the upcoming period.
Inflation along with high unemployment will cause spending to decline adding to that tight credit conditions that prevent the nation from obtaining the required loans to facilitate their spending or expanding their investments whether it was small businesses or regular people that wants to obtain loans for cars, houses or education tuition.
Huge amount of liquidity pumped into the financial system will cause inflationary levels to incline adding to that the Fed policy that still push for growth on the expense of inflation thus inflationary levels will incline on the long term causing serious threat to economical recovery. The world’s leading economy is expected to continue its upside trend in growth throughout this year before it manages to reach its long term growth potentials by the year 2011.
Talking about the Canadian economy, it released its GDP reading for the month of November, whereas the index rose by 0.4% coming in higher than the previous revised and the expected 0.3% by markets.
In addition the Canadian economy showed that the industrial product prices declined in the month of December by -0.1% compared with the previous reported rise of 1.0% that was revised to 0.9% and below market expectations of 0.5%, meanwhile the Raw Materials price index sank by -1.7% from the previous rise of 2.2% and below market expectations of 1.4 percent.
The Canadian economy is following the footsteps of the U.S economy whereas conditions in Canada improved as it did in the U.S by the start of the second half of 2009 due to the tight relation between both countries in various sectors whereas Canada is considered the biggest trading partner for the U.S.
Expectations show that the Canadian economy will manage to reach its long term growth potentials by the second half of 2011, therefore this year the economy will continue to expand and influenced upon by its biggest partner where it will continue to recover over the course of this year before both reach their designated long term growth by the upcoming year.