The March Group Finds GDP Revised Upward
Posted by Carl Doerksen on Wed, Mar 03, 2010 @ 10:05 AM
Last Friday, revised 4th quarter 2009 GDP figures were released. The good news is that instead of being revised downward, which is usually the case, the annualized rate of growth seen in the 4th quarter was revised upward!
According to an article in the Los Angeles times quoting the Associated Press, the economy rocketed ahead at a 5.9 percent pace in the final quarter of 2009, stronger than initially estimated. The fresh reading on the nation's economic standing, released by the Commerce Department last Friday, was better than the government's initial estimate a month ago of 5.7 percent growth. It would mark the strongest showing in six years.
Roughly two-thirds of last quarter's growth came from a burst of manufacturing. Indeed, factories were churning out goods for businesses that had let their stockpiles dwindle to save cash.
As we have posted before (Economists Say Recovery is Firmly on Track - February 25, 2010), forecasters at the National Association for Business Economics (NABE) predict the economy will expand at a 3 percent pace in the first quarter of this year. The next two quarters should log similar growth, they predict.
Unlike past rebounds driven by the spending of shoppers, this one is hinging more on spending by businesses and foreigners. Stronger spending by businesses and foreigners contributed to the bump-up in economic growth in the fourth quarter. So did the fact that companies stopped slashing their stockpiles of goods. During the worst of the recession, companies cut inventories at record rates.
Businesses boosted spending on equipment and software at a sizzling 18.2 percent pace, the fastest in nine years. Foreigners snapped up U.S.-made goods and services, which propelled exports to grow at 22.4 percent pace, the most in 13 years.
In normal times, such growth would be considered significant. But the nation is emerging from the worst recession since the 1930s. For all of this year, the economy is expected to grow 3.1 percent, according to the NABE forecasters. That pace would mark a big improvement from 2009, when the economy contracted by 2.4 percent -- the worst showing since 1946.
As many of you know, in the past the economy's recovery following recessions has been driven by pent up consumer spending. As noted, this recovery will be different and will be driven by business investment and exports, not short term consumer spending. Although this will moderate growth, in many respects, this could actually be beneficial to the longer term health of our economy. Everyone is well aware of the excesses of consumer spending the past ten years and the ravaging effects of credit's contraction because of these excesses. Having a recovery based on more stable, long-term growth factors such as business investment and exports may, in fact, be a good thing.
Also, pundits like to point out that unemployment is an issue. We are all aware that unemployment remains very high. However, unemployment has always been a lagging economic indicator in nearly every recession. In fact, according to many experts, unemployment doesn't tend to increase for two or three quarters after the economy starts to improve. This recovery will certainly be the same. As the economy recovers, and businesses continue to invest in plant and equipment, employment growth will surely follow.
However, we are not economic experts. We are experts in helping middle-market business owners navigate through uncertain times such as these. The key issue for you to consider is that despite uncertainty one thing is true: There are always active buyers in the market for well run, profitable middle-market companies. If you are considering the sale of your company, or if you are just interested in finding out more about the process with a goal of selling in 4-5 years, give the The March Group a call. We would be glad to discuss your many options with you. And, in fact, if the economy does grow by over 3% in 2010, you can expect M&A activity to expand as well. Meaning that this year may be a prime time to begin exploring your M&A options.