This morning the Commerce Department released revised figures for fourth quarter GDP. There was good news: economic output increased at a 5.9% seasonally adjusted annualized pace, up from an earlier measure of 5.7%, showing that the economy is buzzing along even faster than we thought.
Stock futures promptly dropped. Wait. What?
Shouldn’t stock-market investors like the idea of the economy picking up? Well, yes. But dig into the GDP data, and there are reasons to be cautious.
First of all, as we knew even from the preliminary GDP figures, a huge part of the jump—two-thirds worth—came from changes in inventories, not final sales. Companies that had been rapidly running down their inventories suddenly slowed that process, giving the impression of growth.
Demand for final products paints a much less-rosy picture. Originally, it looked like demand was up 2.2% on an annualized basis, but that figure has now been revised down, to 1.9%. Consumer spending, that long-time engine of economic growth, was up just 1.7%.
Plus, even with the big jump in the fourth quarter, 2009 overall still looked pretty bleak. The economy shrank by 2.4% over the course of the year, marking the worst year for GDP growth since 1946. Business investment fells by the most since 1942, and imports the most since 1946. (Thanks to Rex Nutting over at MarketWatch for pulling these stats.) And that, mind you, was with all that stimulus money sloshing around.
Smart people understand it’ll take more than one spectacular quarter to shake off that kind malaise. The fourth quarter may have looked grand, but investors are telling us they don’t expect it to continue.