U.S. and Canadian GDP Growth

January 29, 2010

The U.S. economy advanced at a 5.7% annualized rate last quarter, more than a percentage point faster than consensus expectations and the quickest rate of growth since the third quarter of 2003.  Net exports and inventories accounted for 67.7% of the quarter’s growth, and personal consumption furnished a further quarter of it.  For all the criticism of deficit spending under the Obama administration, real government expenditures slid 0.2% last quarter, rose just 1.6% between the final quarters of 2008 and 2009, and exerted a tiny 0.02 percentage point drag on last quarter’s overall economic growth rate.  In short, government spending was neither stimulative nor restrictive.

Some other interesting observation emerge from the U.S. GDP report.

  • On-year economic growth returned to the black, with a 0.1% uptick between the fourth quarters of 2008 and 2009.  That represents a 6.5 percentage point favorable swing from a contraction of 6.4% between 1Q08 and 1Q09.
  • Residential investment is again expanding but not enough to prevent another huge calendar year decline of 20.4% after drops of 22.9% in 2008 and 18.5% in 2007.  That’s a mind-boggling 50.0% contraction in the residential sector between 2006 and 2009.
  • The U.S. economy contracted 2.4% in 2009 as a whole, less than most other advanced economies.  However, that followed a weak 0.4% expansion in 2008.  For the whole decade, that is between the fourth quarters of 1999 and 2009, real GDP grew 1.8% per annum, well below the 3.3% of the 1990s and 1970s, 3.0% pace of the 1980s, 4.3% pace of the 1960s and 4.2% pace of the 1950s.  The point of the productivity explosion is that such creates a foundation for faster long-term economic growth.  That clearly didn’t happen in the noughties.
  • Inflation in the United States is very benign.  The GDP, personal consumption and core personal consumption price deflators posted respective increases in 2009 of 1.2%, 0.2% and 1.5%, down from advances in 2008 of 2.1%, 3.3% and 24%.  In 2007, those deflators went up 2.9%, 3.1%, and 2.4%.

Canada’s monthly GDP report also showed more strength than anticipated.  GDP advanced 0.4% in November, matching the average increases of September and October and consistent with annualized growth of about 5.0% in the three months between August and November.  This revival follows a deep recession, and GDP was still 1.7% below its year-earlier level.  Growth in November was concentrated in a 2.4% leap in wholesale turnover, a 1.8% jump in mining, and a 1.1% advance in construction.  Factory output was unchanged and down 10.6% from a year earlier, while retail activity contracted 0.8% on the month and increased merely 0.4% from November 2008.  Canada reported benign producer price data, showing a 0.1% monthly downtick in December and a drop of 0.8% from December 2008, plus a 1.7% decline in raw material prices between November and December.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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