Ken Berwitz

At first blush it would seem that the US economy came roaring back in fourth quarter 2009.

How I wish it were true.

Read this excerpt from an article by John W. Schoen of MSNBC (amazed? I don’t blame you) which gives us a far more accurate perspective:

GDP data overstates economy's health

A closer look at 5.7 percent gain for 2009's fourth quarter

By John W. Schoen

Senior producer

msnbc.com

updated 4:31 p.m. ET, Fri., Jan. 29, 2010

The U.S. economy turned in a surprisingly good performance in the fourth quarter, surging ahead by 5.7 percent on an annual basis, according to a government report released Friday.

Or did it?

President Obama was quick to highlight the economy’s progress and “the swift and aggressive actions that made it possible." At a manufacturing company in Baltimore, Md., Obama noted that last years’ massive economic stimulus program had also "stopped the flood of job losses."

He also repeated his administration’s commitment to spur job growth to re-hire the 8 million workers sidelined by the worst recession in 60 years.

Most economists wouldn’t argue with those statements. With more $1 trillion in additional government spending, bank bailout investment and loan guarantees, on top of another $1 trillion-plus in pump-priming from the Federal Reserve, it would be surprising if that money didn’t register a strong showing as it moves through the economy and financial markets.

Friday’s GDP numbers follow a positive showing in last year's third quarter, when GDP advanced 2.2 percent, along with other economic indicators showing signs of life in housing, industrial production and consumer spending, which is beginning to come back from the depths of the recession as confidence slowly recovers.

Corporate profits are also perking up. Of the 40 percent of companies in the Standard and Poor’s 500 that have reported earnings so far, roughly two-third have come in better than expected. Some small businesses are also reporting a pick up demand and have begun tentatively hiring back workers.

But when you look a little more closely at the numbers, it quickly becomes apparent that it’s hardly time to start breaking out the champagne. A big part of the latest GDP gain comes from a statistical adjustment for changes in inventory levels that don’t reflect real growth. Over the past year, businesses cut deeply into those inventories — not wanting to get stuck with unsold goods. Now that they’ve cut them to the bone, the rate of inventory-cutting has slowed. The way the GDP is calculated, that slowdown adds to “growth” — even though it doesn’t reflect increased production or sales. If you back out that inventory adjustment, GDP grew only 2.2 percent.

Friday’s report was the preliminary reading on GDP, which will be revised twice before it’s final. Last time around, the number for the third quarter of 2009 started out at 3.5 percent before pared back to 2.2 percent for the final report. That could well happen this time around. Mike Englund at Action Economics thinks today’s number overestimated the drop in imports because the preliminary numbers may have overestimated the drop oil consumption. He says that accounted for a full percentage point of the 5.7 percent gain in the fourth quarter.

Even if the preliminary number holds through two rounds of revisions, few economists see that kind of growth as sustainable. A panel of economists surveyed by msnbc.com said they see U.S. GDP moving ahead at 2.7 percent this year.

Most of the credit for the boost in GDP has to go to the stimulus — along with the Fed’s historic moves to flood the system with cash and buy up mortgage bonds that no one else wants to touch. What’s far from clear is whether the rest of the economy’s gears will begin turning on their own — once the stimulus spending fades and the Fed turns off the money pump and begins soaking all that excess money.

That changes things just a tad, wouldn’t you say?

But I guarantee President Obama and his people will be crowing over it, and I wouldn’t at all be surprised if he gets a bump in the polls too.

The problem for Mr. Obama and his party, however, is that the midterm elections aren’t being run on the first Tuesday in February; they are run on the first Tuesday in November. And if Mr. Schoen is correct, these numbers, if they even hold up, are going to be ancient history by then.

I only wish it were real. God knows, we could use a booming economy. And if Barack Obama’s policies give it to us, more power to him. What do I care? I would be perfectly happy if Mr. Obama were the reason. I root for the USA, whether it is Barack Obama, George Bush or Harold Stassen (just kidding) running it.