Quick note on GDP rise

It’s a bit late, but I want to comment on it considering it is relatively good news above the surface. For those who didn’t see, the advanced release for GDP in 4th quarter clocked growth at around 5.7%. (here) Considering that this is an advanced release, it will most likely get revised downward later to a more conservative estimate. Why so high? Inventories, mostly, and it is expected that such a growth rate can’t be maintained. ( IHS Global Insight sees growth in 2010 to be around 2.5% – 3.0%)

Beneath the surface there is a nugget of optimism that I want to point out, and that Obama should pay attention to, since timing is critical.  From the BEA release:

Real nonresidential fixed investment increased 2.9 percent in the fourth quarter, in contrast to a decrease of 5.9 percent in the third. Nonresidential structures decreased 15.4 percent, compared with a decrease of 18.4 percent. Equipment and software increased 13.3 percent, compared with an increase of
1.5 percent. Real residential fixed investment increased 5.7 percent, compared with an increase of 18.9 percent.

If you haven’t read previously, I pointed out Greg Mankiw’s belief that an investment tax credit is a great way to spur growth in the economy. I made my case here on Mankiw’s point. Already businesses are seeing that it is profitable in some sectors, notably software, to decide to invest.  As you can see it has spurred tremendous growth for output, which means that demand can only follow.  This in turn will create jobs.  Obama has already indicated an attempt in his State of the Union speech (here) to try and pass a job bill to include an investment tax credit.  Smart move. However, Obama continues to supplant the focus on small businesses when he should be focusing on all sizes.  I am sure not many populists will even notice in order to gain steam against it, because after all, it helps everyone, not just small businesses.   But Obama needs to act quickly if he is going to want to keep growth like this for 2010.  Let’s hope, for something like this at least, that politics don’t get in the way again.


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