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Increased Consumer Spending Lifts U.S. 2010 GDP
The United States’ 2010 GDP soared at an annualized rate of 3.2 percent, as consumer spending rose by the greatest levels in four years. “The consumer really drove the economy in the 4th quarter,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “The economy has moved beyond recovery to a stable state of growth.” For all of 2010, the economy expanded 2.9 percent — the biggest one-year jump in five years — after contracting 2.6 percent in 2009. The volume of all goods and services produced climbed to $13.38 trillion, for the first time surpassing the pre-recession peak reached in the 4th quarter of 2007. Tiffany & Co. saw a significant increase in the sale of fine jewelry. Apple reported record 4th quarter sales as consumers bought 7.73 million iPads as holiday gifts. Ford Motor Company’s sales have been so good that the automaker plans to add an additional 7,000 manufacturing jobs over the next two years. The automaker, which did not undergo bankruptcy, did lay off some salaried employees in 2008 as part of a restructuring in the face of slumping sales.
Exports also helped boost the American economy which should boost job creation over the next several years. “The U.S. is expected to be one of the fastest growing developed countries in 2011, largely reflecting the contrast of the ongoing stimulus with other countries, such as the U.K. and other heavily indebted European nations, where austerity measures designed to reduce deficits are stifling domestic demand,” said Chris Williamson, chief economist at Markit, a London-based research firm. “The acceleration of the U.S. GDP in the 4th quarter, and the changing composition of growth, raises hope that the economic recovery will move into a more self-sustaining phase in 2011 and generate sufficient jobs to reduce unemployment.”
Even the Federal Reserve, which renewed its commitment earlier this week to buying $600 billion in government bonds, agrees that the report shows the economy ended 2010 with moderate strength and breadth, but not enough to bring down the 9.4 percent unemployment rate anytime soon. Personal consumption spending contributed slightly more than three percent to 4th quarter growth. That is in line with retailers’ reports showing a respectable holiday shopping season. Whether that level of spending holds up remains to be seen. Many retailers remain cautious in their forecasts and report that consumers are still bargain-hunting. As gasoline prices rise, disposable income may be limited.
Alter Now does see it as important to note the correlation with an overall increase in consumer credit debt in December, the first spike since 2008. According to the Fed, overall consumer credit debt rose by 6.1 billion, or 3.0%, to $2.41 trillion while revolving credit debt (primarily from credit cards) rose by $2.3 billion (3.5%) to $800.5 billion. No revolving credit rose by $3.8 billion, or 2.8%, to $1.61 trillion. While the spike in GDP is good news, let us remember that it is still being driven by deficit spending.
Compare the U.S. GDP with that of other nations last year and it’s clear who is winning. China, for example, is expected to report an 8.5 percent jump in its GDP, not unexpected in the world’s fastest growing economy. Japan’s real GDP was 3.9 percent higher in annualized terms for the 3rd quarter, beating estimates for a 2.5 percent rise for the year.
In the U.K., the economy shrank by 0.5 percent in the 4th quarter, compared with a 0.7 percent increase in the 3rd quarter. By contrast, the nation with Europe’s largest economy – Germany – recorded a 3.6 percent growth rate in its GDP in 2010.