The US economy surprised everyone in the closing months of 2009. Preliminary figures show the economy churned out impressive 5.7% annualized growth. As the US led the world into recession, it is expected to lead us out. Does the fourth-quarter, 2009 surge herald the beginning of recovery?
Although unusual, quarterly growth at this pace has been seen before, sometimes in the middle or close to the peak of an economic cycle. But in past US experience, rapid quarterly gains often occur just after a period of recession – the recovery phase of the cycle – and have been known to last for 3-5 consecutive quarters. The timing seems to be right; is this burst of growth sustainable?
A quick scan of the sources of growth shows a varied picture. Inventory stabilization played a huge role, accounting for 60% of quarterly growth. This is a strong signal, indicating that the US economy is returning to balance. However, consumer spending, a key engine of global demand, produced a lukewarm 2% gain, weaker than third-quarter growth and a sign that Americans are still moving forward with caution. In contrast, red-hot export growth added more to bottom-line GDP than all of consumer spending, although exports are just one-sixth the size of the US consumer sector.
World-wide, exports had a decent quarter to close out 2009. Data through November indicate pan-global growth of 16%, well ahead of overall GDP growth. Even so, the US economy left this number in the dust, with a 28% increase. No other region did as well, with the exception of Japan, which also fell much farther than most other economies, and remains 18% below peak activity. World exports are on average 13% below peak levels, and with last quarter’s growth, the US economy is slightly above average – an anomaly among developed economies, and more in line with emerging market stats.
Is there decent momentum? For all economies, much of the growth burst occurred last September and October. This could be explained by the success of fiscal stimulus programs in a large number of countries. Spending was expected to kick in during the fall, and the numbers seem to suggest so. If this is true, it would also seem to indicate that widespread protectionist measures aimed at sheltering stimulus did not indeed cut trade out of the bulk of the action. US trade seemed to further benefit from a weakening currency, which fell 10% against all other currencies from late-2008 to mid-2009.
Momentum was interrupted in November. Export growth ground to a halt, and suffered mild declines in key regions. If the trend continues in December, growth carrying forward into the current quarter will be almost at a standstill. Current economic conditions are volatile, and confidence is wavering, complicating month-to-month forecasting; to a great degree, we will have to wait and see.
Two factors could change that. First, if the kick from fiscal stimulus extends into the New Year, trade numbers should reflect it. The second is true revival of consumer spending, both in the US and in other OECD nations. The latter is less likely, given recent confidence and retail sales figures.
The bottom line? Fourth-quarter US growth was a pleasant surprise, but should not be mistaken for true recovery. That will take a more balanced revival in demand, and is still months away. But for the present, the significant rise in activity levels is a good pre-recovery shot in the arm.