New Data Show Economy Growing Again

New government data released Thursday showed an economy that is growing again for the first time in a year. But the economy is receiving much support right now, and no one knows whether it is capable of growing on its own.

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ROBERT SIEGEL, host:

The economy is growing again. The gross domestic product expanded at an annual rate of 3.5 percent in the third quarter. Today, President Obama said he is gratified by the latest numbers.

President BARACK OBAMA: This is obviously welcome news, and affirmation that this recession is abating and the steps we've taken have made a difference. But I also know that we've got a long way to go.

SIEGEL: NPR's Tamara Keith tells us why the path ahead is still such a long one.

TAMARA KEITH: By the numbers, the recovery is pretty remarkable. At the beginning of this year, GDP was down more than 6 percent. Now, it's up more than 3; it's a nearly 10-point swing. But we have to remember, the economy is getting a lot of help from the government: Cash for Clunkers, the first-time homebuyer tax credit, stimulus projects, a fed fund's rate at near 0 percent, and artificially low mortgage rates.

Ms. CHRISTINA ROMER (Chairperson, Council of Economic Advisors): Absolutely, it's a big part of the turnaround that we've seen.

KEITH: Christina Romer is chair of the president's Council of Economic Advisors.

MS. ROMER: The way this is supposed to work, is the government fills the gap until the private sector comes back. And I think we are starting to see some good signs.

KEITH: But if you take out Cash for Clunkers and the homebuyer tax credit, that GDP number starts to look less impressive. John Silvia, chief economist at Wells Fargo, says the big question is whether this recovery will be sustainable once the government starts to pull out.

Mr. JOHN SILVIA (Chief Economist, Wells Fargo Securities): The patient, at some point in time, has to get up out of bed and stand on their own two feet. Now, they may be little wobbly, but to continue to supply support to the marketplace is probably going to create a false sense.

KEITH: So, going forward, Silvia and other economists expect economic growth will be more tame. And there's another issue: unemployment. A report out this morning showed 530,000 people applied for unemployment benefits last week. It was a slight improvement from the week before. But less bad isn't actually that good. Just ask Frank Zeleny(ph).

Mr. FRANK ZELENY: My accounting?

(Soundbite of laughter)

Mr. ZELENY: Recession over? No, not anytime in the near future.

KEITH: Eighteen months ago, Zeleny was laid off from his job on Wall Street. He's been trying to find a job ever since, and works a couple days a week as a substitute teacher to get a little income.

Mr. ZELENY: It's catch as catch can. Every morning at 6:30, I wait to see if the phone is going to ring. If it does, it's a good day. If it doesn't, oh well, go out and rake the yard.

Mr. NARIMAN BEHRAVESH (Economist, IHS Global Insight): The reality is that the jobs recession hasn't ended, even though the GDP recession, the economic recession has ended.

KEITH: Nariman Behravesh is an economist at IHS Global Insight.

Mr. BEHRAVESH: And unfortunately, the employment picture always lags the recovery by three to six months. So it will take a little bit longer before both households and businesses feel comfortable and confident that the recovery has legs, so to speak.

KEITH: That's been the pattern in the last several recessions. John Silvia, at Wells Fargo, says we need to keep these mixed economic signals in perspective.

Mr. SILVIA: You need to congratulate yourself because you just made it through probably the toughest recession since World War II. So going forward, OK, we may not have boom times right away, but we still have economic growth. That'll lead the job growth, and things are getting better.

KEITH: Too soon, he says, for champagne. But you might want to have some on hand for that day when it's clear the job market is back.

Tamara Keith, NPR News, Washington.

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U.S. Economy Grows, At Last, But Jobs More Elusive

A shopper makes her way down an aisle i i

Despite the economy growing in the third quarter, it could take much longer for lost jobs to return, and consumers and companies alike seem reticent to return to their old habits. A shopper makes her way down an aisle at a Target in Durham, N.C. Gerry Broome/AP hide caption

itoggle caption Gerry Broome/AP
A shopper makes her way down an aisle

Despite the economy growing in the third quarter, it could take much longer for lost jobs to return, and consumers and companies alike seem reticent to return to their old habits. A shopper makes her way down an aisle at a Target in Durham, N.C.

Gerry Broome/AP

The U.S. economy might officially be growing again after the most damaging recession in decades, but the pain is far from over.

The long-awaited ray of good news came from the Commerce Department, which announced Thursday that the U.S. economy grew a modest 3.5 percent in the third quarter of this year — the fastest pace in two years.

The jump was above most economists' projections, although it will do little to reverse Americans' gloom about the economy in the short term.

"We're no longer simply on the roller coaster to hell," says Donald Luskin, the chief investment officer for Trend Macrolytics LLC, an economics consulting firm. "But the idea of returning back to normal growth levels? That will be well into next year."

Unemployment is expected to continue growing over the next several months, peaking at over 10 percent. Consumer confidence is still dropping, and new home sales fell unexpectedly last month.

Not A Normal Recession; Not A Normal Recovery?

Heard On 'All Things Considered'

Overall, however, most economists agree that the recovery appears real. Exports are rising, home building is recovering, and real-estate prices have risen for four consecutive months. Consumer spending surged 3.4 percent last quarter as well, the first advance since the third quarter of 2007.

But it's not clear that this rebound will follow the typical post-recession pattern, where sharp contractions are followed by large growth spurts.

"In a normal recession, the leaves fall off the trees because it's autumn," Luskin says. "In this recession, the leaves fell off the trees because there was an enormous forest fire. It's a little bit of uncharted territory to know how long it will take to come out of that."

This time, the damage was so severe that companies and consumers alike appear more reticent to return to their old habits. With Americans still adjusting to the tough new economic realities, consumer spending might not recover for quite some time.

"We have seen a permanent change in consumer behavior after seeing their retirement savings and home values go down," says Gus Faucher, the director of macroeconomics at Moody's Economy.com. "People are going to be more cautious coming out of this recession than they have in previous recessions because of the depth of the downturn."

Companies, shaken by the near-collapse of the credit markets, will be looking for signs that the recovery is sustained.

But Faucher notes that much of the jump in gross domestic product last quarter can be traced to the Obama administration's stimulus spending. This suggests that the underlying economy might be bouncing back more slowly than the 3.5 percent growth figure might indicate.

"The economy will continue to expand, but more slowly in the fourth quarter of 2009 and the first quarter of 2010, as some of those government supports are removed," Faucher says. He expects growth to pick up more substantially in the second half of 2010.

Even with this growth, he adds, "the economy is still much smaller than it was before the recession started."

Expect Job Growth To Lag

Job growth could be a bigger problem. Even in typical recessions, rebounds in employment lag behind GDP growth. But the gap could be even larger this time.

"Current forecasts do not predict substantial employment gains in 2010, and unemployment is unlikely to end 2010 much below its current levels," White House economic adviser Christina Romer said in a speech Monday.

For one thing, the U.S. economy has shed a stunning 7.2 million jobs since December 2007.

But beyond the 9.8 percent unemployment rate, there are also record numbers of underemployed Americans — those working part-time but seeking full-time work. When companies need to boost their output, they will likely boost the hours of those part-time workers before hiring new ones.

"We have more of these part-timers we have to burn through before we can start hiring than ever before in history," Luskin says. "The people who are really hurting — the ones who are working zero days a week — are actually last in line to get relief."

The U.S. government is scheduled to release new unemployment figures next week. Most economists predict another slight rise in the jobless rate.

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