Economy likely grew faster in Q4, but fears remain
WASHINGTON (AP) – At the end of last year, the economy likely grew for the second straight quarter – possibly at the fastest pace in nearly four years.
So the recession has ended, right? Yes, say most economists. But a panel of academics who officially decide such matters has offered a different response: silence.
That’s despite signs that the economy, juiced by government aid, has begun to hum rather than sputter. On Friday, the government is likely to go further: it’s expected to say growth accelerated from October through December.
The housing market, the collapse of which triggered the recession, is creeping back. Industrial production is up. Layoffs have slowed, though companies remain reluctant to hire.
Analysts surveyed by Thomson Reuters estimate the economy grew 4.5 percent in the final three months of 2009. If so, it would mark the best quarterly performance since 2006. Some predict even more dynamic growth – possibly hitting 6 percent, a level not reached since 2003.
But many analysts worry that growth could slow or even stop in coming months. They point to temporary factors that propped up the economy in the fourth quarter but will eventually fade.
Much of the fourth-quarter expansion was due to government stimulus and to companies boosting output to restock supplies depleted by the recession. Such inventory restocking boosts production not only at manufacturers but also at their suppliers. That ripple effect can help boost an entire chain of related industries.
Economists estimate two-thirds to three-quarters of the fourth quarter’s growth came from the inventory cycle, as companies shifted from sharply cutting stockpiles to rebuilding them or only slightly reducing them.
An increase in inventories, or even just a much slower rate of decline, means companies are producing more goods to fill orders and not shrinking their existing stockpiles.
But government stimulus will eventually be withdrawn. Inventory replacement, too, ends, unless demand picks up. And when it ends, so will the production gains that companies and their suppliers enjoy.
For now, the swing is benefiting companies large and small, up and down the supply chain. AK Steel Holding Corp. said this week that greater demand for steel from automakers and other customers drove a better-than-expected fourth quarter profit.
That’s why few think the expansion seen in the fourth quarter can last. Some even fear the recovery might collapse into a “double-dip” recession.
In the meantime, the National Bureau of Economic Research, the group based in Cambridge, Mass., that determines the start and end of recessions, has said nothing about the latest one having ended.
Many economists predict growth will slow to a pace of around 2.5 percent in the current quarter. High unemployment is likely to make consumers cautious, leading to subdued spending in the months ahead.
“The all-important consumer is expected to take a pause,” predicts Tom Porcelli, economist at RBC Capital Markets Corp.