THE US commerce department’s announcement yesterday that gross domestic product (GDP) grew 3.5 per cent in the third quarter lifted American spirits and led some to declare the recession was over.
But, economists cautioned, much of the turnaround is due to government spending. It is not clear how sustainable the recovery will be when stimulus money and incentive programmes run out.
In a speech to small-business owners yesterday, US president Barack Obama said: “We’ve come a long way since the first three months of 2009, when our economy shrank by an alarming 6.4 per cent. In fact, the 3.5 per cent growth in the third quarter is the largest three-month gain we have seen in two years.
“This is obviously welcome news and an affirmation that this recession is abating and the steps we’ve taken have made a difference.”
The turnaround in the third quarter was fuelled by four factors. Much of the $787 billion (€530 billion) stimulus funding approved by Congress last February kicked in. Consumer spending rose after a year of steep decline. The housing market stabilised, and production rose to replenish stocks that businesses allowed to run down during the recession.
Individual consumers account for 70 per cent of economic activity, and consumption rose 3.4 per cent in the third quarter.
But much of that growth came from car sales, spurred by the government’s “cash for clunkers” programme. Car sales accounted for 1.7 percentage points of the 3.5 per cent rise in GDP.
The US housing market had so stagnated that a relatively small uptick translated into a 23.4 per cent rise in sales. This was mostly due to an $8,000 government tax credit for first-time buyers, financial assistance for those facing foreclosure, and moves by the Federal Reserve to reduce mortgage rates.
Congress is discussing whether to extend the tax credits beyond the November 30th deadline.
“The benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we are creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well,” Mr Obama said.
Unemployment stood at 9.8 per cent last month, and some economists predict it will peak at 10.3 per cent early next year. At the same time, the number of Americans losing jobs is slowing.
The US labour department reported that, as of October 17th, the number of people still receiving unemployment benefits after an initial claim declined to 5.797 million, the lowest since March. “It will take sustained, robust GDP growth to bring the unemployment rate down substantially,” said Christina Romer, chairwoman of the White House council of economic advisers.
The US stock market began recovering last March, and news this month that banks are again paying multimillion-dollar bonuses has aggravated the “Main Street versus Wall Street” divide between ordinary people, hundreds of thousands of whom are still losing jobs and homes, and millionaires.
In a Timemagazine poll, 75 per cent of respondents say they believe Wall Street has reverted to business as usual and 67 per cent want the government to impose pay cuts in the banking sector.
US banks that have returned to profitability have done so by trading financial products or buying Treasury securities. “It is nigh impossible for economic recovery to take hold when credit is sputtering as it is. For the Obama administration’s financial strategy to be a success, the banks . . . must lend again,” said an editorial in yesterday’s New York Times.
