Inventories Boosted Growth in Q4 2009

[ProSense]

Inventories Boosted Growth in Q4 2009

by Donald Marron

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As usual, I think the best way to understand this report is to see what sectors contributed the most or least to reported growth:



As expected, much of the growth reflects businesses restocking their shelves and warehouses: inventories accounted for 3.4 percentage points of the overall 5.7% of growth.

Consumer spending grew at a moderate 2.0% pace and thus added 1.4 percentage points to overall growth (consumer spending accounts for about 70% of the economy and 70% x 2.0% = 1.4 %). That’s down from the previous quarter, when cash-for-clunkers boosted car purchases. Housing investment also slowed, again in the wake of earlier efforts–the tax credit for new home buyers–that had boosted growth in the third quarter.

Business investment in equipment and software showed signs of life, growing at a 13% pace, the strongest since early 2006. That added 0.8 percentage points to growth, slightly more than half of which was offset by the ongoing decline in business investment in structures.

Government spending fell slightly during the quarter. Stimulus efforts boosted non-defense spending by the federal government, but that increase was more than offset by a decline in defense spending and a small decline in state and local spending.