Economist's Corner – U.S. Economy Rebounds


By Dr. Lynn Reaser

Last year ended with a strong display of economic growth, with U.S. real GDP (gross national product) rising at an annualized rate of 5.7%.  This measure of the total value of goods and services produced in the U.S., adjusted for inflation, recorded its fastest rate of gain in six years, providing further evidence that the recession is over.

Many analysts dismissed this report as being largely due to temporary factors, led by inventory building.  During much of the past two years, companies slashed production because they could serve customers with goods already on the shelf.  As 2009 came to an end, while many firms continued to pare stockpiles of goods, others finally began to increase production to fill incoming orders.  This even included auto manufacturers.

The inventory cycle should not be discounted as insignificant.  As companies switch from liquidating inventories to rebuilding them during the coming year, the economy will benefit from production and job gains. 

Meanwhile, other parts of the economy participated in last quarter’s gain.  Consumers pitched in with higher spending for furniture, electronics, apparel, and other goods.  Companies boosted their spending on equipment and software, indicating a note of greater confidence as well as profitability.  The support of the rest of the world was also evident in a strong rise in exports.

While growth rates in 2010 will not emulate last quarter’s stellar performance in the face of financing constraints and policy uncertainty, the economy appears to be gaining momentum.  Many problems persist, but the U.S. economic recovery is underway.

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