US recession set for official end

The US recession is expected to be declared over tomorrow but economists insist that it is still too early to start celebrating.

When gross domestic product (GDP) estimates for the third quarter are released at 8.30am local time (12.30 Irish time), they are likely to report that the economy is growing again, ending one of the deepest slumps since the Great Depression.

Encouraging though that might be, it will come as little comfort to the millions of people left unemployed or who have lost their homes as a result of prolonged economic downturn – especially as economists suggest that more jobs and houses are to go before real improvement is realised.

The good news is that the majority of experts agree that the recession is now over and that tomorrow’s figures will confirm this.

Most are predicting it to show that the US economy is growing at around 3%.

More encouraging is the belief that it should lead to a prolonged period of growth.

A recent survey of economic forecasters by research firm Blue Chip Economic Indicators found that the majority believe quarterly GDP figures would remain positive throughout 2010.

The bounce-back from the red is likely to be taken by supporters of President Barack Obama as evidence that his massive stimulus package has been a success.

Josh Bivens, of the Economic Policy Institute, said much of the growth expected to be seen in tomorrow’s figures can be credited to the effects of the president’s American Recovery and Reinvestment Act.

But away from the headline growth figures, things are not so rosy.

Joblessness in the US is hovering at around 9.8% and experts suggest it will get worse before Americans start to see job queues dwindle.

Many forecasters are suggesting that it could hit double figures when new data comes out next week.

Since the start of the recession in December 2007, some 7.6 million people have been laid off. In all, 15.1 million people are now classified as unemployed in America.

Past experience has shown that employment figures tend to lag behind GDP data.

But even so, many economists are suggesting that there is a long way to go before American families start to notice that the economy has been mended.

Jeff Madrick, senior fellow at the Schwartz Centre for Economic Policy Analysis, said: “There are too many serious obstacles to trust that we are really out of the woods.

“On top of which, the unemployment situation is very bad. It isn’t business as usual with employment bouncing back at the end of recession. We have a high level of long-term unemployment.”

The respected economist added that hard-pressed families could also suffer from firms upping mortgage repayments.

“Down the road we are facing in the credit market potential increases in adjustable interest rates that could lead to more defaults and there are serious problems in commercial real estate. The increase in profits by financial firms have not come from loans but from trades.”

Overall, Mr Madrick gave a measured response about what tomorrow’s figures might indicate.

“We are no longer falling off the cliff, but there is no reason to breathe easy yet,” he said.