Ticking Up

In the fourth quarter of last year American GDP grew by an impressive 5.7%, at an annual rate, the best quarterly performance since 2003. Expansion was driven by growth in private inventories and an increase in exports. This fourth quarter increase shows that the worse is over. However, there are reasons to doubt that the impressive performance in a single quarter will be repeated in the coming months. That brief buying spree brought some workers back to assembly lines, but unless a new source of demand arises the boost from restocking will fade and growth will slow. It is not clear where the new demand will come from.

Investment may also disappoint in 2010, because of overcapacity. Oversupply in both residential and commercial property has discouraged investment in the sectors and meant that construction employment is not rising. Nor does it help that government economic support will fade during 2010. Nonetheless, the performance of the American economy in the fourth quarter is encouraging, suggesting firmly that America has pulled free of recession. Yet caution is in order.