This morning, Americans woke up to the “good” news that the US economy grew by 3.5 percent in the third quarter of 2009. This of course, is in marked contrast to the decline of 6.4 percent that occurred just two quarters ago.
“After four consecutive quarters of decline, positive GDP growth is an encouraging sign that the U.S. economy is moving in the right direction. However, this welcome milestone is just another step, and we still have a long road to travel until the economy is fully recovered”, said Christina Romer, Chairman of the White House Council of Economic Advisors.
According to Romer, the turnaround in labor market indicators such as employment and the unemployment rate typically occurs after the turnaround in GDP.
However, while the growth in the US economy is encouraging, there is a long way to go, when one considers the September 9.8 percent unemployment rate, nationally. Florida currently has an unemployment rate of 11 percent, one percent higher than the national rate.
It is cold comfort for those Americans who continue to lose their jobs weekly and daily. And all indications are that this would continue for sometime to come.
The Labor Department reported Thursday that newly laid off workers seeking unemployment insurance fell by 1,000 to 530,000. This was less than what analysts were predicting. They had expected a steeper drop to 521,000. All this means is that the economy isn’t growing fast enough to spur new hiring.
Some analysts predict that it will take at least five years for the unemployment rate to return to pre-recession levels of between 5-6 percent.
Another troubling indicator is the pace of business investment which fell by 2.5 percent, with investment in non-residential structures falling by 9 percent.
So, while there was growth of 3.5 percent in the third quarter, its not long term grow based on solid investment in business.
Undoubtedly, growth in output in the third quarter came from Federal spending and programs like Cash for Clunkers and the Home Buyer Tax Credit. These are short term programs which do not support long-term growth of the economy.
Further, it is not unreasonable to expect that once these programs end (Cash for Clunkers is already over), the economy could well decline once more. To avoid such a scenario, real investment in the US economy is needed if a double dip recession is to be avoided. Short-term “quick fix” programs will not do it.
I for one am not celebrating this “growth” any more than I was happy with the so-called recovery in the economy that took place in 2003/4. Any economic growth which is bought from the future has to reverse in time often with nasty consequences. A real recovery will involve private sector businesses investing to create real wealth not government throwing trillions at the financial sector in the hope that some of it trickles down Main Street.