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Published: October 29, 2009
Updated: November 3, 2009
WASHINGTON (AP)—Fueled by government stimulus, the economy grew last quarter for the first time in more than a year. The question now is, can the recovery last?
Federal support for spending on cars and homes drove the economy up 3.5 percent from July through September. But the government aid - from tax credits for home buyers to rebates for auto purchases - is only temporary. Consumer spending, which normally drives recoveries, is likely to weaken without it.
If shoppers retrench in the face of rising joblessness and tight credit, the fragile recovery could tip back into recession.
For the Obama administration, the positive report on economic growth is a delicate one: It wants to take credit for ending the recession. On the other hand, it needs to acknowledge that rising joblessness continues to cause pain throughout the country.
Millions of Americans have yet to feel a real-world benefit from the recovery in the form of job creation or an easier time getting a loan. Even those with jobs are reluctant to spend. The values of their homes and 401(k)s remain shrunken.
President Barack Obama called the report “welcome news” in remarks prepared for a small-business group but acknowledged that “we have a long way to go to fully restore our economy” and recover from the deepest business slump since the 1930s-era Great Depression.
“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,“ Obama said.
The rebound reported Thursday by the Commerce Department ended the record streak of four straight quarters of contracting economic activity.
The news lifted stocks on Wall Street. The Dow Jones industrials average gained about 150 points in afternoon trading and broader indices also rose.
But whether the recovery can continue after government supports are gone is unclear. Many economists predict economic activity won’t grow as much in the months ahead as the bracing impact of the government’s $787 billion package of increased government spending and tax cuts fades.
The National Association for Business Economics thinks growth will slow to a 2.4 percent pace in the current October-December quarter. It expects a 2.5 percent growth rate in the first three months of next year, although other economists believe the pace will be closer to 1 percent.
Christina Romer, Obama’s chief economist, has acknowledged that the government’s stimulus spending already had its biggest impact and probably won’t contribute to significant growth next year.
For the third quarter, government support proved crucial. Armed with cash from government support programs, consumers led the rebound in the third quarter, snapping up cars and homes. A jump in spending on big-ticket manufactured goods largely reflected car purchases spurred by the government’s Cash for Clunkers program.
Spending on housing last quarter was positive for the first time since the end of 2005. The government’s $8,000 tax credit for first-time home buyers supported the housing rebound. Congress is considering extending the credit, which expires Nov. 30.
Federal government spending rose at a rate of 7.9 percent in the third quarter, on top of a 11.4 percent growth rate in the second quarter. And businesses boosted spending on equipment and software at a 1.1 percent pace, the first increase in nearly two years.
Third-quarter activity also was helped by increased sales of U.S.-made goods to customers overseas, as economies in Asia, Europe and elsewhere improved. The cheaper dollar is aiding U.S. exporters, making their goods less expensive to foreign buyers. Exports of U.S. goods soared at an annualized rate of 21.4 percent in the third quarter, the most since the final quarter of 1996.
Businesses, meanwhile, reduced their stockpiles of goods less in the third quarter, after slashing them at a record pace in the second quarter. With inventories at rock-bottom levels, even the smallest increase in demand probably will prompt factories to boost production. This restocking of depleted inventories is expected to help sustain the recovery in the coming months, economists said.
Still, with unemployment at a 26-year high of 9.8 percent and credit hard to get, the recovery faces obstacles.
“Even if we’ve turned the corner, we know it’s a long way before we’re completely recovered,“ Christina Romer, chair of the White House Council of Economic Advisers, said in an interview with The Associated Press. “You can’t have an unemployment rate of 9.8 percent and not be deeply troubled.“
Economists say the jobless rate probably nudged up to 9.9 percent in October and will go as high as 10.5 percent around the middle of next year before declining gradually. The government is scheduled to release the October jobless rate report next week.
With joblessness growing and wages dipping slightly in the third quarter, consumers are expected to turn more restrained in the months ahead. That would put a much heavier burden on America’s businesses to keep the recovery going.
“We’re beginning to crawl out a very deep hole,“ said economist Ken Mayland, president of ClearView Economics. “It will take time to get back to normal again and there are questions about how consumers will hold up in the months ahead. But I think the recovery will be sustained.“
To foster the recovery, the Federal Reserve is expected to keep a key bank lending rate at record low near zero when it meets next week and probably will hold it there into next year. With the economy on the mend, the Fed has slowed some emergency support programs but doesn’t want to pull the plug until the recovery is on firm footing.
Even with the economy climbing back into positive territory in the third quarter, it’s up to another group to declare the recession over. The National Bureau of Economic Research, a panel of academics, is in charge of dating the beginning and ends of recessions. It usually makes it determinations well after the fact.
Reader Reactions
I am excited about the growth, even a little bit of good news might get people in a better mindset. I just wonder what the numbers would be if they excluded the cash for clunkers program? I know that it cost the tax payer 24k for each car and that is a total outrage! Programs like the CFC do keep the economy growing somewhat, but the expense is only passed on to our children.
I am a middle of the road person who voted for Obama, but I am very troubled about the direction our country is heading. It would seem to me that more of the stimulus money should have been spent on creating jobs. Can anyone imagine what fantastic shape our country would be now had they taken 100% of the stimulus money and funded new business creation? I am not going down that road of rubber stamping everything any politician does from now on just because they are a Democrat, or Republican. I am going to join the other long line of American’s that are tired of politicians just saying, and promising anything to get elected into office. Then doing the exact opposite of what they promised. This should make everyone that posts on the forum mad as H_LL. But what I can see is same-ole-same-ole blind following the blind and trying to one-up each other just because your Democrat, or Republican. While you are doing the bickering, thieves in DC are stealing you blind to line the pockets of their special interest projects. George Washington said it best when he said “the two party system will ruin this Country”
I wish Obama had kept his word on just 10% of what he promised. I was looking for a deep change in how business in DC was going to be conducted in the future. But what most of us got was just another cup of empty promises shrouded in secrecy. In other words I am having buyer’s remorse with no way of getting a refund.
Now let me have it and lets do what they all want us to keep doing…
Jason Pollack blamed Bush for the high oil and gas prices and low Dow. Well, they are going back up again, and the Dow is going back down. So now I guess it is Obamasamas fault. What is good for the goose is good for the gander. Tell Obamasama that we are lucky to have jobs left, and the gas prices are taking food out of our childrens mouths. Jobs are at a 26 year low. Not to mention those who have quit trying. The economy is not really growing, it is just getting a little bump upwards because of the reckless spending from Washington. It will be temporary, with nothing to show for it but more debt piled on our children, grand and great. But Obama flies his family around to parties at $100,000 per trip in transportation costs, and rubs his nobel peace prize. The rest of us rub our bellies and wonder where the money for next weeks needs will come from. But he keeps telling us that things are better than they were yesterday! Yea, right. ;(
Gas Prices are up sharply from just a year ago.
Retail sales are in the toilet.
Our public schools are dismal failures, more like day-care camps for troubled youth.
Job losses continue, the permanently unemployed are dropped from the roles and the numbers still climb. The under-employed struggle to survive while Millionaires get free bail-outs from the Obama administration.
Our country’s debt is higher than can be calculated.
Senior Citizens will be eating cat food because Obama’s government refuses to give them a cost of living increase.
Meanwhile Obama is playing with his Peace Prize.
Miles - We simply disagree on this. If you look at the Brown decision, you will find no where in there where that case REQUIRED either busing or federal expenditures to local school districts. The gist of Brown was that your school district had to provide equal opportunity and access of minority students to the same facilities and resources available to white students. Integrating the already existing schools versus building new ones and busing students to achieve racial parity were obvious means to an ends. I’m simply saying the court did not require either of those actions. It did, in later cases, uphold those actions as legitimate ways to achieve integration, but I can’t think of a single Supreme Court case that said “You will bus students” or “You will spend federal dollars” for this or that. And that’s what we are talking about here: the spending of federal tax dollars on issues (i.e., public education) that should be funded by state and local governments.
And that’s not shoveling bull, that’s stating facts.
Rockit, you are mistaken. Where do you think much of the busing money originated, just to use one example? Funding was one crucial result of Brown. Come on. You know better than to shovel that bull.
But Miles, Brown v Board of Education had nothing to do with funding. The Court didn’t direct that federal funding be provided for public education. In striking down Plessey’s seperate-but-equal doctrine the court merely tried to level the “playing field” so that minority students received the same opportunities as whites.
The biggest mistake with respect to public education funding was the creation of the Department of Education. That decision, by arguably one of the absolute worst Presidents in our history, one James Earl Carter, had nothing to do with education. That was a political payoff to the national teacher’s unions who care nothing about educating our children—they’re only concern is gaining tenure and financial benefits for themselves. As a union, I don’t mind that. That’s what they are their for. But they shouldn’t be funded at the federal level.
Returning funding of public education entirely back to the state and local level will not mean a return to Plessey. The law is still the law. Regardless of how a local school system is funded, they still must comply with the law.
Rockit, I have one quick rejoinder. First I have no illusions that the federal government is the panacea for all that ails us. But I specifically remember what happened in this country in the 20th century when education was left to the whims of local and state school boards. Without an extensive history lesson, suffice it to say it took the US Supreme Court to intervene. I am no more comfortable now that I was then in leaving the education of our children exclusively in local hands. May be you were one of the lucky ones back then.
Don’t knock Honda and Toyota. Outstanding vehicles. American auto industry is just beginning to close the quality gap. For some strange reason, the quality of vehicles seems inversely proportional to the wages paid the line workers. Go figure.
Don’t count out the growth we will see after everybody goes out and buys their street legal golf carts for the Cash For Clubbers Rebate!
Well after borrowing Trillions from China to buy Toyota’s and Honda’s..
We have 3.5 % growth !!!
Yiphee!!!
What a bunch of moron’s we have !
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