The BEA has released the Fourth Quarter GDP Report. The annualized growth came in at 5.7%, which was at the high end of the Bloomberg consensus range of 3.5% to 5.7%. This is the result of inventory buildup that analysts have been waiting for:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 5.7 percent in the fourth quarter of 2009, (that is, from the third quarter to the fourth quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.2 percent.

…

The increase in real GDP in the fourth quarter primarily reflected positive contributions from private inventory investment, exports, and personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP in the fourth quarter primarily reflected an acceleration in private inventory investment, a deceleration in imports, and an upturn in nonresidential fixed investment that were partly offset by decelerations in federal government spending and in PCE.

Motor vehicle output added 0.61 percentage point to the fourth-quarter change in real GDP after adding 1.45 percentage points to the third-quarter change. Final sales of computers subtracted 0.03 percentage point from the fourth-quarter change in real GDP after subtracting 0.08 percentage point from the third-quarter change.

…

Real personal consumption expenditures increased 2.0 percent in the fourth quarter, compared with an increase of 2.8 percent in the third. Durable goods decreased 0.9 percent, in contrast to an increase of 20.4 percent. Nondurable goods increased 4.3 percent, compared with an increase of 1.5 percent. Services increased 1.7 percent, compared with an increase of 0.8 percent.

We get bad news for the year as a whole:

Real GDP decreased 2.4 percent in 2009 (that is, from the 2008 annual level to the 2009 annual level), in contrast to an increase of 0.4 percent in 2008.

But we are consoled by the fact that Q409 was better than Q408:

During 2009 (that is, measured from the fourth quarter of 2008 to the fourth quarter 2009), real GDP increased 0.1 percent. Real GDP decreased 1.9 percent during 2008.

Now for the analysis. Note that the explosive growth from cash for clunkers tapered off. We won’t know for a while whether this economic activity is even beneficial (aka do the cars they make sell?). I’m a bit surprised by the subtraction from computer sales. Tech was a rather strong performer in Q4. That apparently didn’t translate into computer sales. The other thing, given that we are still a consumer economy, is to check consumery things. Here are their contributions to this GDP number:

1. Motor vehicles and parts: -0.57 
2. Furnishings and household stuff: 0.16
3. Recreational goods and vehicles: 0.33
4. Eating out: 0.23
5. Clothes: 0.17
6. Paying the utility bills: 0.44
7. Health care: 0.16
8. Paying bank fees: 0.12
9. Eating in: -0.03

In total we have:

1. Goods: 5.09
2. Services: 1.14
3. Structures: -0.50
4. Motor vehicle output: 0.61
5. Final sales of computers: -0.03

We aren’t investing in buildings or computers. Consumers are shopping, consuming both goods and services. This isn’t huge growth, particularly compared to inventory buildup, but it’s consistent with historical data in good times (the ‘06-‘07 data). People aren’t buying cars, but that’s ok, because the GDP contribution from making cars more than offsets the GDP subtraction from nobody buying them. People are eating out more and eating in less (that, or buying cheaper stuff when they eat in). The death of the consumer appears to be a little exaggerated. So much for the coming age of austerity.

The PCE number above (2% growth compared to 2.8% growth in Q3) is a decent aggregate measure for consumption. It doesn’t tell quite the story that the components do, though.

I had some good questions last quarter, so I thought I’d revisit them.

mattlehrer: What are the contributions from state/local vs federal government spending? In particular, are they moving in opposite directions?

As before, this question is important because state governments are usually pro-cyclical, while the federal government attempts to be counter-cyclical (in theory).

Real federal government consumption expenditures and gross investment increased 0.1 percent in the fourth quarter, compared with an increase of 8.0 percent in the third. National defense decreased 3.5 percent, in contrast to an increase of 8.4 percent. Nondefense increased 8.1 percent, compared with an increase of 7.0 percent. Real state and local government consumption expenditures and gross investment decreased 0.3 percent, compared with a decrease of 0.6 percent.

They are again on opposite sides of the zero divide, but no longer moving in the same direction. Some people may be happy to see that the federal spending has shifted from military to non-military spending.

the405club: Is there anything in the report that will have a significant impact on (un)employment?

Last time I said that getting employment from GDP was complicated and something I wasn’t going to do. I gave a simple model that someone else could use and resorted to handwaving. This time, the handwaving is much easier. Assuming we are a consumer economy, this report looks good. Consumption is up. However, I caution against reading too much into this. Inventory buildup was the biggest contributing factor to the headline number. The real individual consumption numbers were positive, but quite small. We’ve set the stage for the recovery, but until that first list of numbers I gave exhibits some real life or are even sustained where they are (small growth compounded), I expect sluggishness in hiring.

The rebuilding of inventories required switching back on factories that had been shut down. The increase in exports relative to imports also implies domestic production. However, those jobs should have materialized in the past reports, not future reports. The fact that we missed a positive number in December isn’t very encouraging. I’ll probably post more on this in the near future, as the EU bailout of Greece (almost certain) will probably weaken the euro. That will be bad for US exports. This is also an area I’m not an expert at (I have downloaded a couple papers on how much currency strength impacts trade balances… I hear this Krugman fellow won a Nobel prize for something along those lines). I therefore don’t have a good idea how those numbers, particularly how they contribute to employment, will change moving forward.

gilmoure: How much of GDP is profits on trading on Wall St. and how much of it is due to actual economic growth and production?

Less growth in financial services than last quarter. Record bonuses, though. You want to call that a draw? Production was way up, but this was to rebuild inventories. Even if the level of activity is sustained, the growth will not stay. Next quarter will be more revealing.

This was a great report. January has been strong as well, so while we won’t have eye-popping numbers in First quarter of 2010, it still looks like a positive quarter.