Monday, 31 January 2011

US economy completes recovery from recession

The United States economy finally recovered its pre-recession gross domestic product in the fourth quarter of 2010.

The advance estimate of US GDP released by the Commerce Department on Friday showed that real GDP grew at an annual rate of 3.2 percent in the fourth quarter of last year. This was faster than the rate of 2.6 percent seen in the third quarter.

The growth in the fourth quarter brought the annual real GDP to $13.38 trillion. This is higher than the peak of $13.36 trillion seen at the peak of the previous economic cycle in the fourth quarter of 2007.

Among the components of GDP, personal consumption expenditures also surpassed their precession high in the fourth quarter while government expenditures and investment never fell below the level achieved in the fourth quarter of 2007.

Net exports have also contributed substantially to the US recovery with exports hitting a record level in the fourth quarter as it surpassed its previous peak achieved in the second quarter of 2008.

The component that has lagged so far is private investment. In the fourth quarter, fixed residential and non-residential investment -- both structures and equipment and software -- were still below their pre-recession peaks.

The other thing that has lagged the recovery in GDP is, of course, employment. As of December, the unemployment rate was still at 9.4 percent.

Corresponding with the lack of recovery in employment, real personal income excluding current transfer receipts in the fourth quarter was still 4.4 percent below the peak reached in the first quarter of 2008. The good news here is that the latter indicator rose at an annual rate of 2.6 percent in the fourth quarter and has now grown for four consecutive quarters, so the trend is positive.

Of course, Friday's report on GDP is just an advance estimate. Revisions later on could still change the picture somewhat.

Nevertheless, we can at least tentatively say that the US economy has fully recovered from its worst recession since the Great Depression.

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