The US economy starts to recover

The US economy grew by 5.9% during the fourth quarter of 2009, boosted by increased business investment and restocking as companies rebuilt inventories. Ben Bernanke, chairman of the Federal Reserve, described the US economic recovery as “nascent” and emphasised the ongoing need for low interest rates.

Bernanke believes that high unemployment and low inflation will help the Fed to keep US interest rates low for “an extended period”, but went on to warn that the Fed will have to begin raising rates “at some point”. Unemployment fell unexpectedly to 9.7% during January, its lowest level since August 2009. Job openings increased for the first time in three months last December, boosting hopes that employers are becoming more optimistic about prospects for the US economic recovery. Meanwhile, wholesale prices grew at a faster-than-expected pace, boosted by higher prices for energy, pharmaceuticals and light trucks

.US equity prices rose over February as a whole while the S&P 500 index increased by 2.9%. Investor sentiment was boosted by some encouraging economic data and corporate earnings announcements. Of the 456 companies in the S&P 500 that have reported fourth-quarter earnings since 11 January, three-quarters announced profits that beat consensus forecasts. However, investors’ morale was somewhat dampened by speculation over soaring budget deficits in some European countries and their possible negative effect on the global economic recovery.

US retail sales increased for the third time in four months during January, boosting hopes that consumers will be at the forefront of the economic recovery. Consumer activity makes up 70% of Us GDP. Retail sales grew more quickly than expected, climbing by 0.5%, although consumer confidence posted an unexpected drop.

According to the International Council of Shopping Centers, sales at 31 chains rose more quickly than expected, registering growth of 3%. Retailers avoided excessive discounting activity through the effective control of their inventories. Gap, Saks and Abercrombie & Fitch announced better-than-expected January sales, while department-store operator Macy’s announced stronger-than-forecast sales growth that was boosted by online sales. Overall, online spending rose by 2.6% year-on-year in the fourth quarter of 2009, led by strong performance from Wal Mart and Amazon.

Insurer AIG, the recipient of a controversial and high-profile bailout by the US government in September 2008, reported fourth-quarter losses of $8.87bn (£xxbn) that were magnified by the company’s decision to put aside additional reserves to pay insurance claims and pay back bailout funds.