US recession ends, economy starts growing again

GDP shows 3.5 per cent growth in the last quarter

 The nation’s gross domestic product expanded at an annual rate of 3.5 per cent in the three months ending in September, a significant spike from a somewhat shrunken base.

The economy had contracted at annual rates of 0.7 per cent and 6.4 per cent in the second and first quarters of this year, respectively. Much of the growth can be attributed to the billions in federal aid devoted to economic renewal, including policies that encouraged consumer spending on cars and housing.

“That alters the dynamic of a recession and a recovery, and what you’re left with, to some degree, is an artificial recovery,” said Dan Greenhaus, chief economic strategist at Miller Tabak, an investment research firm. “Over the next several quarters, the support for the economy on the part of the government wanes and the economy has to find its own footing.”

The cash-for-clunkers programme helped boost consumer spending on durable goods, which grew by an annual rate of 22.3 per cent in the third quarter compared to a decline of 5.6 per cent in the previous quarter. Similarly, economists say the $8,000 federal tax credit for first-time homebuyers helped revive spending on housing, which increased 23.4 per cent in the third quarter, in contrast to a decrease of 23.3 per cent in the second quarter.

The economic growth came without a major surge in inflation. The price index for gross domestic purchases, a broad measure of prices that Americans pay for goods and services, increased at an annual rate of 1.6 per cent in the third quarter, compared with an increase of 0.5 per cent in the second, the department said. Excluding food and energy prices, the inflation index rose 0.5 per cent in the third quarter, compared with an increase of 0.8 per cent in the second.

Poor job market

The poor job market is discouraging Americans from increasing their spending by too much. Consumer spending on nondurable goods like food and clothing, for example, increased 2 per cent in the third quarter, compared to a decline of 1.9 per cent in the second. Likewise, stagnant consumer demand and withering consumer confidence have left companies wary of hiring more employees — or, for that matter, taking any expensive risks.

The jobless rate reached 9.8 per cent in September, its highest rate in 26 years. According to Thursday’s report, business investment in buildings and other structures fell at an annual rate of 9 per cent in the third quarter.

The New York Times