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2010 economic output regains pre-recession levels

February 3rd, 2011

Economic output in the United State finally regained pre-recession levels as consumer spending and exports grew in the final quarter of 2010. U.S. gross domestic product (GDP0, a measure of the country’s economic output, jumped 0.6 percent in the fourth quarter, moving from a 2.6 percent annual rate to a 3.2 percent pace.

Many economists and investors believe that this is the boost needed to gain momentum and lower unemployment levels in the upcoming months. A major reason for growth was an increase in consumer spending. The hope is that the rise in demand may signal businesses to start stocking their shelves, and employing more workers in 2011.

Yet, the outlook unfortunately remains cloudy, as there was little reaction to the GDP report by investors after its release.

A slight rise in the Dow Jones industrial average was reversed as investors caught news of the rioting in Egypt. Such civil unrest has triggered investor uncertainty.

The riots have also resulted in a significant raise in both gold and oil prices, due to Egypt’s possession of two of the world’s key energy supply routes: one being the Suez Canal, connecting the Mediterranean Sea with the Indian Ocean, and a 200 mile summed pipeline.

Chinese farmers have also been hoarding cotton in an attempt to drive up prices, causing a degree of uncertainty in the market. China’s unwillingness to release data on how much they currently have, as well as how much they plan on stockpiling, has caused endless speculation and rumor among investors and consumers.

When the recession finally ended in the summer of 2009, economic output had fallen 4.14 percent below the pre-crisis level in 2007.

Since the recession took hold, it has taken 12 quarters to regain those losses. Not only has it taken three years, but the U.S. economy is still smaller than when the recession began. Historically, economists say such a long recovery is unusual. It took only eight quarters to bounce back into the black from the recession of the 1970s.

Despite the setbacks, consumer confidence is on the rise. Consumer spending, which accounts for roughly 70 percent of demand in the U.S. economy, climbed an impressive 4.4 percent in the most recent quarter.

This statistic reflects an increase of nearly double the size of the previous quarter’s 2.4 percent increase. Analysts caution that if the U.S. is to sustain growth they will have to rely on a faster pace of hiring early in 2011.

The reasoning behind this is to reduce the level of unemployment. More people with money means more money spent, and greater profits to be had for companies.

The question becomes whether the growth in economic output will be enough to pull the economy back up to pre-recession sizes, or whether uncertainty in the market will keep it suffocated. Either way, the GDP report remains a step in the right direction for the U.S. economy.