The first estimate of US GDP today came in at 5.7% Q/Q annualized for Q4. This was the second consecutive quarter of GDP growth, and the first of 2009 to resemble anything like a post-recession bounce. The print came in stronger than market consensus for 4.7%.

On an annual basis, U.S. GDP growth is now up 0.1% Y/Y, which is an improvement from the -2.6% Y/Y pace seen in the final Q3 report. Based on the advance estimate the pace of growth during Q4 clocks in at the fastest since Q3-2003.

The key factor pushing GDP higher during the quarter can be attributed to the slowing pace of inventory liquidation after deep cuts early in the year. In Q4, the change in private inventories contributed a large 3.6 ppt to the headline print. Not surprisingly, residential investment was also quite positive during the quarter as favourable mortgage rates and good affordability spurred construction and renovations. (Caution: the next wave of foreclosure-induced inventory is coming soon to markets all over).

A few things to keep in mind here: the market was already expecting a big number for Q4. If we could not get a decent bounce in Q4 after massive inventory depletion and with enormous government help, then recovery would seem hopeless in deed. But it is also worth noting that the originally reported 3.5% Q/Q ann. gain in Q3 was eventually revised down to 2.2% Q/Q ann. We don't expect the Q4 number to be revised substantially lower at this point, but it is likely to get marked down somewhat on the next round of tabulations.

Lastly, the issue of focus here is what will the next two quarters of growth look like? Governments are beginning to pull back a bit from extraordinary measures (and Q4 GDP will encourage them to keep pulling back), meanwhile the real economy is still trembling with the after shocks of the credit bubble and on going deleveraging.

World markets have taken quite a drubbing in January, a relief rally here might be likely, but questions about "what kind of recovery?" will plague us for some time yet. Any euphoria over last quarter may be short-lived.