South By North Strategies, Ltd.

Advance estimates from the U.S. Bureau of Economic analysis show that real gross domestic product (GDP) grew at a 3.2 percent annual rate between October and December 2009.  This is the third consecutive quarter of GDP growth.

Real GDP is driven by four broad factors: personal consumption expenditures (PCE), gross private domestic investment, net exports, and government spending and investment.

Last quarter,  personal consumer expenditures were the main driver to GDP, adding 2.6 percentage points to the quarterly change. The other major contributor was gross private domestic private investment (primarily changes to private inventories), which added 1.7 percentage points to growth. Increases in net exports and declines in government spending  subtracted from quarterly growth.

Many observers will look at the positive top-line figure — which is subject to two further revisions — as proof that the economy is improving. While positive GDP growth is welcome news, the top-level figure masks a great deal of weakness. Residential real estate is still a drain on the economy while the positive contributions from inventory adjustments are transitory at best. Also, the overall growth rate slowed sharply compared to the prior quarter and are is not at a level capable of lowering the national unemployment rate.