October 31, 2009
While some think the recession fighters are already out of the woods, others argue that there could be another downturn before there is light at the end of the woods.
This question was pondered by pundits and laymen alike.
MORE ENCOURAGING DATA
The Commerce Department reported that the U.S. economy expanded3.5 percent in the third quarter after four consecutive quarters of contraction, the strongest signal so far that the worst recession since the 1930s had ended.
In the first two quarters of 2009, the U.S. real GDP (gross domestic product) decreased 6.4 percent and 0.7 percent. In the last two quarters of 2008, the economy contracted 2.7 percent and 5.4 percent.
Data showed that the increase in real GDP in the third quarter of this year reflected a wide range of positive contributions from different economic sectors.
Real personal consumption expenditures increased 3.4 percent in the third quarter, compared with a 0.9 percent decline in the second. Consumer spending on durable goods -- items expected to last more than three years -- soared at an annualized rate of 22.3percent in the July-September period, the biggest rise since the end of 2001.
Exports of goods and services increased 14.7 percent in the third quarter, in contrast to a decrease of 4.1 percent in the second. The change in real private inventories added 0.94 percentage points to the third-quarter change in real GDP after subtracting 1.42 percentage points from the second-quarter change.
Federal government spending, which rose at a rate of 7.9 percent in the third quarter, also made a significant contribution to the economic turnaround.
The housing market also showed positive signs during the summer. Spending on housing projects surged at an annualized pace of 23.4 percent, the largest jump since 1986.
"After four consecutive quarters of decline, positive GDP growth is an encouraging sign that the U.S. economy is moving in the right direction," the White House said Thursday in a statement.
YET CAUTIOUSLY OPTIMISTIC
Yet even the government was cautiously optimistic when it admitted that the GDP figure represented only part of the story.
"This welcome milestone (growth in the third quarter) is just another step, and we still have a long road to travel until the economy is fully recovered," the White House said in the statement.
"Unemployment remains unacceptably high for every person out of work, for every family facing foreclosure, for every small business facing a credit crunch," Treasury Secretary Timothy Geithner observed. "The recession remains alive and acute."
In response to the GDP data, U.S. President Barack Obama said that "while this report today represents real progress, 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's concerns were echoed by many economists, who worried that the economy might still lose its strength since the recovery was mainly driven by the government's stimulus package and might not be sustainable when the stimulus policies fell off.
The Obama administration launched a 787 billion-dollar stimulus package in February. But some of the policies have already expired or will expire soon.
After the Cash-for-Clunkers program came to an end in August, U.S. auto sales fell sharply.
New home sales also decreased at an unexpectedly high annual rate of 3.6 percent in September as the government-supported 8,000-dollar tax credit program for first-time home buyers will expire on Nov. 30.
Home builders have started to worry that they would have trouble selling their homes without the incentive.
GREATER CHALLENGES AHEAD
It is certain that the U.S. economy's return to growth is good news for the world economy. But the sustainability of that return is not without uncertainty.
First, although the government is quite aware of the importanceof job creation, the high unemployment rate will not fall to reasonable levels soon, which means the economy will suffer longer than predicted.
"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. "You can't have an unemployment rate of 9.8 percent and not be deeply troubled."
The Federal Reserve and many other economic institutions do not expect the unemployment rate to drop below 9 percent in 2010.
Second, the long-lasting debt problem seems hard to resolve.
The Treasury Department announced on Oct. 17 that the federal budget imbalance of the fiscal year ending Sept. 30 had soared to 1.42 trillion dollars, which accounts for about 10 percent of the total GDP, the highest proportion since World War II.
The U.S. House rolled out the health care legislation Thursday, which will add an 894 billion-dollar fiscal burden in a 10-year period.
"Policy-makers have options to bolster the recovery, but they should be mindful of the long-run costs, particularly in terms of the budget deficit," said Karen Dynan, vice president and co-director of Economic Studies at the Washington-based think tank, the Brookings Institution.
The third uncertainty is the dollar itself.
Put into a global perspective, the U.S. growth was partially based on the devaluation of the dollar -- the still dominant reserve currency in the world.
Statistics showed that the U.S. dollar had devaluated more than15 percent against major currencies since March this year.
The Washington Post reported Thursday that "the dramatic decline of the U.S. dollar is aiding the American economic recovery but setting off alarm bells overseas, with corporate executives, politicians and pundits calling it among the biggest threats to the rebounds underway in other parts of the world."
Besides, there are many other obstacles that lie ahead of the economic recovery, including the still tight credit condition, theailing banking system and the impending threat of inflation.
The U.S. National Association for Business Economics predicts growth would slow to a 2.4-percent pace in the fourth quarter. It also expects a 2.5-percent growth rate in the first three months of next year, although other economists believe the pace would slow further, closer to 1 percent.
"There is a great deal of uncertainty about the strength and speed of the nation's recovery, with gradual expansion being the most likely economic scenario," Dynan concluded.