The beginning of the end of the recession - Dr. Ali Dadpay

After months of suspense, it is uplifting to review America's fourth-quarter economic performance. The economy has grown for the second successive quarter, and the 5.7 percent rate outpaced the 2.2 percent rate recorded for the third quarter.

Businesses are investing more in software and equipment. These investments have increased by 13.3 percent, compared to a 1.5 percent increase in the third quarter of 2009. In the absence of the "Cash for Clunkers" program, consumer spending increased at a slower pace -- a 2 percent annual rate, rather than the prior quarter's 2.8 percent rate. Still, it contributed 1.44 percent to GDP (Gross Domestic Product).

What we see is a continuous growth, and that is good, but, are we at the end of the recession? The generally accepted answer is: "No, this is not the end."

First, the promising 5.7 percent growth rate is subject to revision, as the growth rate for the third quarter was revised twice reaching 2.2 percent from an initial estimate of 3.5 percent.

Second, and more importantly, is the cause of this unexpected, high growth rate. Many believe that GDP growth in the fourth quarter of 2009 is mostly due to an "inventory bounce." Companies are ordering new equipment and products to store in their warehouses to keep their inventories balanced.

Thus, in order to understand the effects of this phase of recovery on Georgia's economy, we ought to consider how much Georgia businesses have benefited from this continuous growth, and how much they have contributed to it by stockpiling products and parts. Some might even be skeptical as to whether the Georgia economy has felt any impact, in real growth terms. After all, with statewide unemployment at 10.3 percent, more jobs are needed in Georgia.

The truth is as Christina Romer, the White House's top economic advisor, says: "Inventory bounce, though likely to be transitory, is a normal part of healthy recoveries. As firms' confidence in the future increases, their desire to run down inventories wanes. This change in behavior is often a powerful force for growth early in a recovery."

And that is true, a business without a positive perspective of the future would not be stockpiling equipment and products. Thus, either way, the Georgia economy is, indeed, gearing up for recovery, along with the national economy.

It is not easy to guess how fast the economy will continue to recover. The most important consequence of this report would be its effect on consumers' confidence. During most of 2009, consumers' confidence in the future did not improve. Therefore, consumer spending was slow to recover, and in many cases, it was simply frozen; a condition which was worsened by a weak labor market.

Continuous GDP growth would be a good reason for consumers to trust again in their stars, and to increase spending. This would be the next phase of economic recovery, which might bring about a stronger labor market.

No, this is not the end, but it might be the beginning of end of the recession for both Georgia and the national economy.

Dr. Ali Dadpay is an economist, and assistant professor with The School of Business

Center for Research on Economic Sustainability and Trends at Clayton State University.