GDP Soars To 5.7%

"[It] confirms what we've recognized for some time, that the president’s policies have moved the economy back from the brink of depression and have created a basis for economic growth.” [Lawrence Summers, White House economic adviser]

Yesterday the Commerce Department reported that fourth quarter GDP grew at a hefty 5.7%, besting analysts' expectations of 4.7%. News stories reported the figure as being the highest level in 6 years. However, closer examination of the report elicited reactions such as these:

"It’s far too early to break out the champagne and declare ‘recovery accomplished.’ Even if this growth rate were to be sustained for 3 years we would still not create enough jobs to climb out of the hole caused by this recession. Worse, this growth will not be sustained." [Josh Bivens, Economic Policy Institute]

"It is quite obvious to us that the rebound during the quarter was not a function of some new-found economic dynamism, but rather it was the slowing pace of inventory liquidation that really dealt the winning hand. The fact that sixty percent of growth can be attributed to this correction suggests the pace of GDP growth going forward will fail to keep pace, though that is not to say growth will stall altogether." [Ian Pollick, TD Securities]

The headline figure is a preliminary one that will be revised twice more, likely downward. As mentioned above, virtually 2/3 of this gain was due to inventory build-ups by US firms that had depleted their stores due to the recession, and as such, had to replenish their supplies in the fourth quarter. Excluding this component, then, GDP grew at a much weaker rate of 2.2 %, which is still less than the 3% rate that businesses would like to see before hiring resumes. Under-reported, however, was the fact that the economy still contracted 2.4% for the year, its biggest drop since 1946.

So how did the 'smart money' react to the news? Initially rallying on the report's release, the markets sold off the rest of the day and closed lower on heavier volume (suggesting heavy institutional selling). Why would corporate America 'poo-poo' the wonderful news? As the saying goes, 'the devil is in the details' of Obama's onerous proposals. Yet, it was early last year that Obama's own head of his Council of Economic Advisors, Christina Romer, stated, “We feel very confident that eventually the markets will respond when they understand the policies, and when the policies start doing what we firmly think they’re going to do.” I think the markets understand the policies already...

Moreover, when one considers the dearth of private sector experience of Team Obama (a measly 8%), and its incessant effort to usher the economy down a toilet, there should be no surprise that markets were unimpressed. By comparison, Eisenhower's cabinet had a 58% rate; Reagan: 56%; George W Bush: 53%. Even JFK, whose cabinet had the lowest private sector experience before Obama's presidency, had a rate of 28% (A full graph can be seen here).

Investors and corporations alike know what Obamanomics represents: over-regulating, growth-stymieing, tax-punishing, intrusive Big Government (Buenos Dias, Señor Chavez?). And it's remarkably conceited of this president, the least experienced of ANY of his predecessors, to lecture corporate America on how to best run their businesses, and to dictate how the economy should work.

As Investor's Business Daily sums it up, "If things had been done differently, we'd be in a real recovery now, with job growth of 200,000 or more a month."