Saturday, January 30, 2010

Good, Not Great

Fourth quarter 2009 GDP growth figures released on Friday showed that the economy grew 5.7 % in real, annualized terms. (This number has to be divided by four to get the actual real growth in GDP since it represents a three month period). This is good news, not bad news, but it isn't anywhere near the usual growth rates of eight percent or better that typically accompany the early stages of economic recovery.

So, the good news is that we are experiencing economic recovery, but the recovery is, by historic standards, anemic. Final demand was up a meager two percent with inventory corrections providing 3.4 percent of the 5.7 percent number. This means the recovery is fragile, at best. The economy lost more than 200,000 jobs during the fourth quarter. Employers seem determined to avoid any significant hiring.

If there were no bad news coming from Washington (in other words, if Obama had no agenda), the economy could begin to get untracked. But, fear of the Obama agenda restricts the economy to slow-walking with the possibility that the economy could slip back into negative territory later in the year. The main problem looming in 2010 are the layoffs, sure to come, at the state and local government level.

We are, by no means, out of the woods. If Obama would change course, we could begin a normal economic recovery. It doesn't look like Obama has gotten the message, so look for the economy's future to be dicey.