US pulling out of recession

The US economy has returned to growth after a prolonged period of shrinkage in the first official recognition that the recession may finally be over.

An advance estimate of gross domestic product (GDP) by the Bureau of Economic Analysis suggests that US output expanded at an annual rate of 3.5% in the third quarter.

However, it may be too early to start celebrating, experts suggest.

Next week, employment figures are expected to show that people are still losing jobs, while many are predicting home repossessions will continue to rise.

The positive growth recorded in the third quarter is the result of a mix of government spending, increased exports and a upward tick in personal consumption, the Bureau said.

It ends a negative streak that lasted for four previous quarters, representing one of the longest recessions ever recorded in the US.

Last quarter saw the US economy contract by 0.7%

The Bureau stressed that the “advance” estimate is based on incomplete data that is subject to revision. As such many will wait until second estimates are released on November 24 before officially declaring the recession over.

However, the overwhelming majority of economists will take the news as near confirmation of what they already believed – that at one point over the late summer months, the US moved back into positive territory.

The return to growth is likely to be seized upon by supporters of the administration as proof that President Barack Obama's stimulus package has been central to turning the economy around.

Josh Bivens, economist at the Economic Policy Institute, noted that in the six months prior to the passing of the American Recovery and Reinvestment Act – as the package is formally known – the economy was shrinking at a rate of 5.9%, but in the half-year since it has grown at 1.4%.

He said: “While it’s far too early to declare ’mission accomplished’, it is crystal clear that the Recovery Act was crucial in pulling the economy out of its tailspin and putting it on the path to growth.”

Today’s figures are in line with most economists’ predictions.

Perhaps more encouraging is the belief by many 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.

But it may be a while before Americans start to notice that the economy is on the mend.

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 come 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 today’s figures might indicate.

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