US Economic Growth Calms Recession Fears: Will It Last?

A summer of modest economic growth is helping dispel lingering fears that another recession might be near. Whether the strength can be sustained is less certain.

The US economy grew at an annual rate of 2.5 per cent in the July-September quarter, the Commerce Department said Thursday. But the growth was fueled by Americans who spent more while earning less and by businesses that invested in machines and computers, not workers.

The expansion, the best quarterly growth in a year, came as a relief after anemic growth in the first half of the year, weeks of wild stock market shifts and the weakest consumer confidence since the height of the Great Recession.

The economy would have to grow at nearly double the third-quarter pace to make a dent in the unemployment rate, which has stayed near 9 per cent since the recession officially ended more than two years ago.

For the more than 14 million Americans who are out of work and want a job, that's discouraging news. And for President Barack Obama and incumbent members of Congress, it means they'll be facing voters with unemployment near 9 per cent.

``It is still a very weak economy out there,'' said David Wyss, former chief economist at Standard & Poor's.

For now, the report on US gross domestic product, or GDP, sketched a more optimistic picture for an economy that only two months ago seemed at risk of another recession.

And it came on the same day that European leaders announced a deal in which banks would take 50 per cent losses on Greek debt and raise new capital to protect against defaults on sovereign debt.

Stocks surged on the European deal and maintained their gains after the report on US growth was released. The Dow Jones rose 340 points to close at 12,209. The Dow hadn't closed above 12,000 since August 1. The Standard & Poor's 500 index is close to having its best month since 1974.

If higher stock prices lead consumers to feel more confident about their wealth, they may spend more. That could help sustain economic growth.

The GDP report measures the country's total output of goods and services. It covers everything from bicycles to battleships, as well as services such as haircuts and doctor's visits.

Some economists doubt the economy can maintain its modest third-quarter pace.

US lawmakers are debating deep cuts in federal spending next year that would drag on growth. And state and local governments have been slashing budgets for more than a year.

Source: http://articles.economictimes.indiatimes.com/2011-10-28/news/30332816_1_unemployment-rate-economic-growth-recession-fears