The US economy ended 2009 on a strong clip, with the economy expanding at a seasonally adjusted 5.7% annual rate between October and December, according to the first estimate from the Department of Commerce. That followed a 2.2% annual rise in the 3rd quarter. The quarterly growth was the best since late 2003. For the year though the economy shrank 2.4%, the worst year for GDP since 1946 when the US was transitioning from a war footing to a peacetime economy.

A big part of the gain in the 4th-quarter was a slower drawdown in inventories, as real final sales which is GDP minus the change in private inventories, rose only 2.2%. The slower fourth-quarter drawdown added 3.39 percentage points to GDP. Consumer spending meanwhile, added 1.44 percentage points as personal spending rose 2% in the quarter. In the third-quarter, spending was higher on the back of the boost from the cash-for-clunkers program. While spending is expanding, the Fed, has said that it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit.

The housing sector rose for a second quarter as residential fixed investment increased by 5.7%. It had surged 18.9% in the 3rd quarter. Government spending increased 0.1%, following a 8.0% increase in the 3rd quarter. Trade was a net positive, though a small one, as exports jumped 18.1%, while imports were 10.5% higher. Finally business spending rose 2.9%, which was the first increase since the spring of 2008.

On the inflation front, the core PCE – which strips out volatile items like energy and food prices – rose 1.4% in the 4th quarter, after rising 1.2% in the third quarter. Fed officials closely watch this figure and their statutory goal of price stability as inflation of 1.5% to 2%. Other price measures rose as well. The price index for personal consumption expenditure climbed 2.7%, following a 2.6% rise the previous quarter, and the price index for gross domestic purchases, which measures prices paid by US residents rose by 2.1%, after increasing 1.3% in the 3rd quarter. Finally, the chain-weighted GDP price index increased 0.6%, after rising 0.4% in the 3rd quarter.

Provided by: Department of Commerce

Personal Consumption: 2.0%, pr. 2.8% (3Q), -0.9% (2Q),
0.6% (1Q), -3.1% (4Q), -3.8% (3Q). 1.2% (2Q)
PCE Price Index: 2.7%, pr. 2.6% (3Q), 1.4% (2Q), -1.4% (1Q),
-4.9% (4Q), 5.0% (3Q), 4.3% (2Q), 3.5% (1Q)
Core PCE Price Index: 1.4%, pr. 1.2% (3Q), 2.0% (2Q),
1.1% (1Q), 0.9% (4Q), 2.4% (3Q), 2.2% (2Q)
GDP Price Index: 0.6%, pr. 0.4% (3Q), 0.0% (2Q), 1.9% (1Q),
0.5% (4Q), 4.2% (3Q), 1.1% (2Q), 2.6% (1Q)