A better-than-expected GDP report Friday indicated that the U.S. economy grew at 5.7 percent in the quarter October through December 2009, the largest increase since the third quarter of 2003.
The report, which is a broad measure of economic activity in the United States, was described by Christina Romer, chair of the White House Council of Economic Advisors, as “the most positive news to date on the economy.”
But some economists are cautioning that, because a large part of the increase was due to companies rebuilding their inventories after scaling back during the worst of the recession and not led by consumer spending, it may be unlikely that the economy will see sustained growth in subsequent quarters. And it is unclear whether last quarter’s boost will translate into job creation.
Today’s report that GDP grew at a 5.7% annual rate is good news, but it’s far too early to break out the champagne and declare ‘recovery accomplished.’ Even if this growth rate were to be sustained for 3 years we would still not create enough jobs to climb out of the hole caused by this recession. Worse, this growth will not be sustained. This quarter’s growth was driven largely by a restocking of business inventories that will not be repeated in coming quarters.
This is the second consecutive quarter of positive growth in the United States, but with the unemployment rate still hovering at 10 percent, the White House took pains not to appear that it was declaring the recovery in full swing. “As always, it is important not to read too much into a single report, positive or negative,” Romer said in a statement. “There will surely be bumps in the road ahead, and we will need to continue to take responsible actions to ensure that the recovery is as smooth and robust as possible.” Earlier in the statement, she wrote, “our focus must remain on getting Americans back to work.”
At the Atlantic, Derek Thompson features an interesting chart showcasing “the Chicago Fed National Activity Index (NAI) — what Barry Ritholz calls ‘the best economic indicator you’ve never heard of.” It suggests that despite the good GDP news, the recovery may have been stalled since September.
Whether GDP is even a useful gauge for the health of an economy has been the subject of increasing debate in recent months. Last September, Nobel-winning economists Joseph Stiglitz and Amartya Sen released a study, commissioned by French President Nicolas Sarkozy, in which they and other economists and social scientists argue that GDP is an obsolete method of measuring economic well-being.
In a Guardian op-ed at the time of the report’s release, Stiglitz wrote:
The big question concerns whether GDP provides a good measure of living standards. In many cases, GDP statistics seem to suggest that the economy is doing far better than most citizens’ own perceptions. Moreover, the focus on GDP creates conflicts: political leaders are told to maximise it, but citizens also demand that attention be paid to enhancing security, reducing air, water, and noise pollution, and so forth – all of which might lower GDP growth.
Tonight on the NewsHour, Judy Woodruff and guests discuss the GDP and other economic news.