Economic Notes: Fourth Quarter 2009: Got Growth, Not Jobs
2/01/2010
By Patrick O'Keefe, Director of Economic Research, J.H. Cohn
In the second half of 2009, the U.S. economy grew – but employment fell. Is that about to change?
Gross Domestic Product (GDP) increased by an inflation-adjusted 5.7 % in 2009’s fourth quarter (Q-4). This is according to the “advance” estimate of the Bureau of Economic Analysis (BEA), which will be revised twice as more complete data become available.
2009 ended on the best quarterly performance since Q-3 2006 and, as a result, the nation’s output of goods and services in Q-4 2009 marginally exceeded Q-4 2008. Yet despite two consecutive quarterly increases, the economy’s total annual output in 2009 was 2.4% less than 2008’s.
All of GDP’s major components contributed to the increase, with one exception: government spending. Public sector outlays were marginally negative (-0.2%) as reductions in state/local spending exceeded a slight rise in Federal expenditures.
Consumer spending rose by 2%. This was smaller than the prior quarter’s gain, when auto sales were boosted by the “cash-for-clunkers” incentives. Noteworthy, however, was the third consecutive quarterly gain in services expenditures. More than two-thirds of the nation’s jobs are in the private service-providing sectors. A sustained increase in services spending will eventually translate into increased hiring – the sine qua non of a sustained recovery.
Business investment surged (+39.3%) in Q-4, primarily as a result of reduced inventory depletion, which accounted for 59.5% of the quarter’s GDP growth. As the chart displays, inventory decumulation has slowed sharply, which means that production is meeting an increasing share of final demand. As with rising services spending, this will lead to increased demand for labor (i.e., more jobs and higher incomes).
Even though the nation’s trade deficit exceeded $340 billion in Q-4, it was slightly smaller than the prior period as foreign demand for U.S. goods rose more rapidly than its demand for foreign products.
Two quarters of growth have been achieved via increased worker productivity and more hours for the record number of those involuntarily working part time. Over that period, layoffs have slowed; but there is little evidence of increased hiring (or recalls). In the next couple of months, that will change.
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The statements, opinions, and conclusions contained herein are based solely upon the author’s own studies, research, and personal experience. Neither J.H. Cohn LLP nor the author makes any representation or warranty as to the accuracy or completeness of this information. J.H. Cohn LLP and the author expressly disclaim any liability for any loss or damage which may be incurred, of any kind whatsoever, as a result of or arising from the use of any of the information contained herein or reliance on the accuracy or completeness of it.