US economic growth accelerated to an annualized rate of 3.2% in Q4’2010 compared to 2.6% growth in Q3 2010. Chart.1 shows QoQ growth in US real GDP since its peak in Q4 2007. However, Q4 2010’sgrowth rate was not as robust as that experienced in Q4 2009 (annualized rate of 5%). US economic growth has accelerated since Jun 2010.
Chart.1 GDP growth accelerates Chart.2 Consumer & Exports Bolster Growth
Which sectors have contributed to GDP growth? Chart.2 shows the economic sector contribution to GDP growth at annualized rates, for periods Q4 2009, Q3 2010 and Q4 2010. In Q4 2009 most indicators except government expenditure contributed positively to growth in economic activity. Consumer expenditure and net exports were the main drivers of economic growth in Q4 2010. Consumer spending increased by 4.4% in Q4 compared to 2.7% in Q3 2010 (annualized rates). Exports, the second pillar of economic growth, rose by 8.5% (up from 6.7% in Q3). Imports declined by 13.6% in the most recent quarter (rose in Q3 by 16.8 %). Insufficient inventory buildup dampened Q4 growth. In the following quarters, the need to restock may negatively influence net exports as imports rise.
Chart.3 USA GDP Recovery Bolstered by Export, Consumer and Government
Chart.3 highlights the USA real GDP and components basis rebased to Q4 2007 peak in GDP. It shows the trend in GDP and its components during the recession and the current recovery. Noteworthy, is the shallow decline in personal consumer expenditure despite the massive fiscal stimulus during the recession. PCE at its lowest was 2.5% from the Q4 2007 peak and as of Q4 2010 is marginally above its pre-recession peak. Furthermore, as expected the trade deficit also improved during the recession. Residential investment has declined by nearly 30% off the peak of Q4 2007. The inventory hung-up that built up during the boom period will need to be cleared to stimulate growth in residential investment. Residential investment increased by 0.84% in Q4 compared to a fall in Q3 of 7.7%. Residential building completions are at an all time low.
Fed sees, “… economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions…”, according to the recent minutes from the FOMC meeting on Jan. 25 2010. The lack of impetus from economic recovery may stem from the lackluster growth in private gross domestic investment.
More so, since the construction industry is labour intensive and contributes a larger portion of employment relative to the portions of GDP.