Economic output expands in the fourth quarter of 2009. The Bureau of Economic Analysis released its advance estimate of real Gross Domestic Product (GDP) for the fourth quarter of 2009, showing that output grew at an annual rate of 5.7 percent. This is the second consecutive quarter that real GDP has grown. More than half of the increase in GDP (3.4 percentage points) is attributable to private inventories being drawn down at a slower rate than the previous quarter. (see Chart) This deceleration in the draw of private inventories may indicate businesses’ optimism about future sales; businesses chose to meet most of their demand from current production rather than continuing to draw down inventories.  In addition to satisfying demand from current production rather than inventories, both domestic and foreign demand for goods increased this quarter, further increasing GDP.  An increase in exports contributed almost one-third (1.9 percentage points) of the increase in GDP.  Increases in consumption also made a substantial contribution (1.4 percentage points).  Personal consumption expenditures (PCE) rose by 2.0 percent in the fourth quarter. The rise in PCE is attributable to a 4.3 percent increase in nondurable goods expenditures which offset the 22.2 percent decline in expenditures on motor vehicles and parts.  Residential fixed investment, which had declined for 14 consecutive quarters, rose for the second consecutive quarter, contributing a small amount to GDP (0.14 percentage points). Federal government spending remained essentially flat in the fourth quarter following a rise of 11.4 percent in the second quarter and 8.0 percent rise in the third quarter. In response to declining revenue, state and local government spending contracted by 0.3 percent and were largely responsible for the 0.2 percent drop in total government spending in the fourth quarter (reducing GDP by 0.02 percentage points). Offsetting the increase to GDP from exports, a 10.5 percent rise in imports led to a 1.4 percentage point decline in GDP.  While the overall number indicates that the economy grew at a strong pace during the fourth quarter of 2009, consumer spending and fixed investment are still weaker than most economists expect for a strong recovery to persist.

Durable goods orders rise. The Census Bureau reported that new orders for manufactured durable goods rose by 0.3 percent in December to $167.9 billion. Despite the recent increase, new orders of durable goods in December were 20.2 percent below their level in the same period a year ago. The rise in new orders in December largely reflects an 8.1 percent increase in primary metals orders ($1.2 billion) and a 6.0 percent increase in new orders of machinery ($1.4 billion). Orders for machinery have risen three of the last four months. However, these gains were partially offset by a 3.9 percent decline in electrical equipment, appliances and components and a 2.0 percent decline in new orders of transportation equipment. Excluding transportation equipment new orders of durable goods rose by 0.9 percent. The rise in durable goods may indicate that businesses expect demand to pick-up in the near-term.