US no longer in recession

29 October 2009

The US economy has come out of its longest and most severe recession since the 1930s, unofficial figures from the Department of Commerce have shown.

The world's largest economy grew at an annual rate of 3.5% between July and September - its fastest pace since the third quarter of 2007 and above expectations for a 3.3% rise.

This follows from a 0.7% contraction between April and June.

The third-quarter recovery was broad-based, with solid gains in consumer spending, exports and investment in home-construction as the government's $787 billion stimulus package gave the economy a much needed boost.

Residential investment jumped at a 23.4% rate during the period, contributing to GDP for the first time since 2005 after declining 23.3% between April and June.

Consumer spending, which accounts for two thirds of US economic activity, climbed 3.4% in the third quarter, fuelled by the government's cash for clunkers scheme.

However, analysts are concerned over the strength of the recovery as consumption growth levels remain weak.

Duncan Higgins, a senior analyst at Caxton FX, says: 'Concern will now linger over whether the US economy will be able to sustain this level of growth as the government begins to unwind these stimulus packages. US unemployment is still stubbornly on the rise, currently hovering just below 10%. For those out of jobs, exiting the recession will provide little comfort.'

And Paul Ashworth, senior US economist at Capital Economics, adds: "We expect economic growth to continue at about this pace for another few quarters, as pent up investment demand is released, inventories are restocked and the boost to infrastructure spending from the fiscal stimulus continues.

"However, we suspect that all those positive factors will fade badly in the second half of next year."

Economists at IHS Global Insight believes that the underlying growth in the economy is closer to 2% than 3.5%. It expects growth to begin to pick up at some point during the second half of 2010.

Other data this week has already raised questions about the sustainability of recovery, with consumer confidence dipping to recessionary levels and new home sales falling unexpectedly.

In response to the news, the US dollar has continued to weaken against sterling, falling a further 0.2%, prolonging a recent rally built on increasing risk appetite.

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