The news today is that GDP rose by 3.5% last quarter, making the recession [un]officialy over. That is not just good news for Democrats, but for all Americans. Still, we have a long way to go. Too many are out of work and with little hope for a job in the near future.
Here's the key points of the White House statement by economist Christina Romer, which I think puts the correct tone on this good news:
- "in the absence of the Recovery Act, real GDP would have risen little, if at all, this past quarter."
- "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."
- "it will take sustained, robust GDP growth to bring the unemployment rate down substantially. Such a decline in unemployment is, of course, what we are all working to achieve."
The full statement and more after the fold.
"Data released today by the Commerce Department show that real GDP grew at an annual rate of 3.5 percent in the third quarter of the year. This is in stark contrast to the decline of 6.4 percent annual rate just two quarters ago. Indeed, the two-quarter swing in the rate of growth of 9.9 percentage points was the largest since 1980.
Analysis by both the Council of Economic Advisers and a wide range of private and public-sector forecasters indicates that the American Recovery and Reinvestment Act of 2009 contributed between 3 and 4 percentage points to real GDP growth in the third quarter. This suggests that in the absence of the Recovery Act, real GDP would have risen little, if at all, this past quarter."
"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. The turnaround in crucial labor market indicators, such as employment and the unemployment rate, typically occurs after the turnaround in GDP. And it will take sustained, robust GDP growth to bring the unemployment rate down substantially. Such a decline in unemployment is, of course, what we are all working to achieve."
Here's why we still have a lot of work to do:
Federal Reserve Chairman Ben Bernanke and members of Obama's economics team have warned that the nascent recovery won't be robust enough to prevent the unemployment rate — now at a 26-year high of 9.8 percent — from rising into next year.
Economists say the jobless rate probably nudged up to 9.9 percent in October and will go as high as 10.5 percent around the middle of next year before declining gradually. The government is scheduled to release the October jobless rate report next week.
10.5% has a huge human cost, and a big political cost to Democrats.
This rise in GDP is driven by government spending and the Fed's "quantitative easing" of credit.
"A lot of this is thanks to government support," Kathleen Stephansen, chief economist at Aladdin Capital Holdings LLC in Stamford, Connecticut, said in an interview on Bloomberg Television. "We still have major headwinds for the consumer. That worries me. The consumer, in fact private demand in general, is not ready yet to pick up the growth baton from the government."
The gain in consumer spending, which accounts for about 70 percent of the economy, "largely reflected" an increase in purchases of automobiles attributable to the administration’s "cash-for-clunkers" plan, the report said. The 22 percent jump in purchases of durable goods, which includes autos, was the biggest since 2001. Total purchases were forecast to climb 3.1 percent, according to the survey median.
Excluding the influence of auto sales, production and inventories, the economy grew 1.9 percent last quarter.
The big problem:
Since the recession began in December 2007, the U.S. has lost 7.2 million jobs. Payroll cuts peaked at 741,000 in January before falling to 263,000 job losses in September.
So Ms. Romer's cautious optimism is about right. We still have a lot of work to do. We need to keep government spending up to make up for a loss of consumer spending, a loss driven by the unemployment figures. And we have a moral obligation to help those out of work and build a fair economy where there are decent paying jobs for those who need them.