Economy Grows, But Doubts Remain The government reported Friday that the U.S. economy grew 5.7 percent in the last quarter of 2009. Although the White House called it the "most positive news on the economy to date," analysts disagree on whether the growth means the economy is out of the woods.
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Economy Grows, But Doubts Remain

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Economy Grows, But Doubts Remain

ROBERT SIEGEL, Host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel in Washington.

MADELEINE BRAND, Host:

And I'm Madeleine Brand in California.

The most positive news on the economy to date. Those words today from the White House describing a better than expected burst of growth late last year. Economists agree that the news was indeed good.

But as NPR's John Ydstie reports, they disagree on whether the economy is truly out of the woods.

JOHN YDSTIE: The 5.7 percent growth rate for October, November and December significantly exceeded most economists' expectations. John Sylvia who's the chief economist for Wells Fargo says it adds to his belief in the recovery.

JOHN SYLVIA: I'm far more confident now, having seen this number that we will have sustained growth. There's no W here in this economic period, no double depreciation.

YDSTIE: What boosted Sylvia's outlook were some other numbers further down in the GDP report. For instance, consumers spending grew at a 2 percent annual rate in the fourth quarter, and business investment and equipment and software also grew nicely. Sylvia says that suggests confidence is returning, which is necessary to create a self-sustaining recovery.

But Mark Zandi of Moody's Economy.com is skeptical.

MARK ZANDI: I don't think the coast is clear. For that to occur, we need to see businesses start hiring again. I anticipate that this spring. But until that occurs, I don't think we can conclude that we're home free here.

YDSTIE: Zandi says the consumer spending number was good news, but points out that most of the 5.7 percent growth rate at the end of last year was due to businesses readjusting their inventory levels, ordering more from producers to re-stock their warehouses than they did at the depths of the recession. He argues that to make sure the recovery continues, there needs to be more government stimulus.

ZANDI: The risks are still high that we could backtrack into recession. The foreclosure crisis, the lack of credit, these are all very serious threats and most notable is the lack of hiring, at least so far. So, that's why I think it's very important for policymakers to remain aggressive.

YDSTIE: Zandi believes that if the job creation proposals President Obama unveil during his State of the Union speech were quickly enacted, it could boost growth. He thinks it could increase from 2.5 percent this year to over 3 percent, enough to start bringing down the unemployment rate from 10 percent where it is today.

But Wells Fargo's John Sylvia says more stimulus is not needed and not a good idea.

SYLVIA: It's hard to justify adding permanent workers with these temporary programs. Lot of businesses are going to look at this and say how can I hire a somebody today if you're going to take away this temporary program in a year or two.

YDSTIE: Undeterred by arguments like that, President Obama was pushing his jobs proposals today and he had a tough audience, the Republican congressional retreat in Baltimore, where he outlined a new job tax credit for small businesses.

BARACK OBAMA: And here's how it would work. Employers would get a tax credit of up to $5,000 for every employee they add in 2010. They'd get a tax break for increases in wages as well.

YDSTIE: In addition, the president is proposing that $30 billion of the rescue loans that banks are repaying be made available to small community banks so they can make loans to small businesses. The Congress will get these and other job creation proposals officially when the president sends his budget to Capitol Hill on Monday.

John Ydstie, NPR News, Washington.

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