MercoPress. South Atlantic News Agency

US economy contracted 2.4% in 2009, in spite of strong 5.6% in fourth quarter

The sharp slowdown in liquidation of inventories helped boost 2009 fourth quarter

The United States economy contracted 2.4% in 2009 according to the latest estimates from the US Bureau of Economic Analysis. Growth in 2008 was 0.4%.

The GDP increase of the fourth quarter was finally down three-tenths of a percentage point from 5.9% to 5.6%, according to the latest estimate from the Department of Commerce, but still the fastest growth in six years.

The small adjustment was primarily due to downward revisions to business spending, inventories and consumer spending.

The chief reason for the fast pace of growth was the sharp slowdown in liquidation of inventories during the fourth quarter. Amid the recession, businesses cut inventories drastically, by 160.2 USD billion in the second quarter and 139.2 USD billion in the third quarter. Inventories added only 0.69 percentage points to the 2.2 percent growth in GDP in the third quarter.

But in the fourth quarter business inventories decreased by just19.7 billion, as the result was a 3.79 percentage point addition to GDP from inventory value.

Although the last two quarters showed significant recovery after the first two, the economy contracted by 2.4 percent for all of 2009.

Profits from current production decreased 3.8% in 2009, compared with a decrease of 11.8% in 2008. Domestic profits increased 1.4 %, in contrast to a decrease of 17.6% in the previous year. Profits from current production increased 108.7 billion in the fourth quarter, compared with an increase of 132.4 billion in the third quarter.