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In the fourth quarter, the economy soared at a faster pace than expected: 5.7%, marking the fastest pace in more than six years, as businesses made less-aggressive cuts to inventories and stepped up spending, Reuters reported.

Economists had expected GDP to rise at a 4.6% pace.

While the year closed out with a strong fourth quarter, overall for 2009 the economy contracted 2.4%, the biggest decline since 1946.

After plummeting at the start of the year, gross domestic product turned higher in the third quarter, and the quickening fourth-quarter pace reported by the Commerce Department on Friday suggested a sustainable recovery has begun.

“Wow, great number. It’s very solid and gives us a running start into the second half of the year when we can’t rely on government stimulus,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “That’s part of the plan, to get us moving as fast as possible so when life support is removed we’ll have a pulse.”

The strong numbers caused U.S. stocks to open strong, while Treasury debt prices deepened losses. The dollar rose against the yen. Growth in the fourth quarter was boosted by a sharp slowdown in the pace of inventory liquidation, Reuters reported.

When businesses are selling off inventories, there is less of a need to step up production and it weighs on GDP. The slowing rate of inventory reduction in the fourth compared to the third quarter lifted GDP by nearly 3.4 percentage points, Reuters reported. But even stripping out inventories, the economy expanded at an annual rate of 2.2%, accelerating from the 1.5% increase in the third quarter, reflecting relatively strong performance from other segments of the economy.

But the increase does not yet mean we’re in the clear and headed for a huge rebound.

“The economy continues to improve, but we do not have an economic boom here,” said John Silvia, chief economist at Wells Fargo Securities in Charlotte, North Carolina.

Meanwhile, consumer spending increased at a 2% annual rate in the fourth quarter, contributing 1.44 percentage points to GDP. In the third quarter, consumer spending had risen at a 2.8% pace, supported by the government’s “cash for clunkers” program.

 

 

 

 

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