US Economy Grows for First Time in More Than a Year

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By Michael Bowman Washington 29 October 2009

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The longest and deepest U.S. economic recession of the post-World War II era is over, according to government data released Thursday.

After four consecutive quarters of contraction, the U.S. economy grew at a 3.5 percent annual rate from July through September. The figure, released by the Commerce Department, showed the most robust expansion in two years.

Economists, like Kathleen Stephansen at Connecticut-based Aladdin Capital Holdings, hailed the news.

"Indeed, the recovery is in place. This is a good start," she said. "It is a little bit stronger than what the consensus [expectation] was."

Stephansen was speaking on Bloomberg television.

Fueling the economic growth were jumps in spending on large manufactured goods and housing. Both of those categories benefited from significant government subsidies for the purchase of fuel-efficient vehicles and homes. But the so-called "Cash for Clunkers" automobile subsidy has ended, and the first-time home buyer tax credit is expiring. That has Kathleen Stephansen apprehensive about U.S. economic performance going forward.

"A lot of this consumer spending increase is thanks to government support. Seventy percent of this economy is still [driven by] the consumer," she said. "The consumer is still in a balance sheet repair-mode [favoring debt reduction over purchases]. And that means that he or she will be careful in spending, and wage income is not growing very fast. So, we still have major headwinds [challenges] here for the consumer, and that worries me."

Adding to the challenges going forward is the U.S. unemployment rate, which stands at 9.8 percent and is expected to go even higher in coming months despite the economy's return to positive growth.

The Labor Department reports 530,000 newly-laid off Americans filed for unemployment benefits last week, a slight dip from the previous week but still more than many economists had expected. On the other hand, the total number of continuing claims stood at 5.8 million, down by nearly 150,000 from a week ago.

Analysts say stubbornly-high unemployment will constrain U.S. economic expansion for the foreseeable future.