Us economy starts to grow

The US economy returned to growth in the third quarter after the longest period of economic contraction since the Great Depression, official figures confirmed on Thursday.

US gross domestic product grew at an annual rate of 3.5 per cent in the quarter – slightly higher than analysts were expecting – after shrinking in each of the past four.

President Barack Obama said the report was “welcome” but stressed his own benchmarks for economic strength included “whether we are creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well”.

At the same time, the International Monetary Fund more than doubled its forecast for Asian economic growth for the year and raised its forecast for 2010, reflecting a sharp improvement in the region’s prospects over the past six months.

The IMF said: “Just as the US downturn triggered an outsized fall in Asia’s GDP because international trade and finance froze, now their normalisation is generating an outsized Asian upturn.”

US consumer spending on durable goods jumped in the quarter, fuelled by the popular “cash-for-clunkers” car-buying subsidy. Meanwhile, residential investment increased for the first time in more than three years as prices stabilised with the help of a temporary homebuyer tax credit. While cash-for-clunkers boosted the overall growth figure, consumer spending on smaller items and services also picked up, as did business investment in equipment and software.

Consumption overall grew by 3.4 per cent in real terms in spite of a fall in disposable income, with the savings rate declining again to 3.3 per cent.

The Financial Times October 2009

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Us consumer confidence falls sharply

US consumer confidence fell sharply this month as persistent fears about joblessness darkened the mood in spite of a stock market rally and a rebound in home prices.

The Conference Board's latest index of consumer confidence fell from 53.4 in September to 47.7, the biggest drop in eight months. Even more alarming was the plunge in sentiment about "current conditions" which fell to a 26-year low and is in step with the rising unemployment rate, which has reached its highest level since 1983.

Economists keep a close watch on consumer confidence as a signal for future spending, which accounts for about 70 per cent of economic activity in the US. The weakness in that area offers a stark reminder of how fragile the recovery remains and about anxiety over the fate of the economy after bold stimulus measures subside.

The Conference Board noted that consumers are worried about future earnings and finding it difficult to get jobs, a sentiment likely to constrain spending in the holiday season.

Ian Shepherdson, chief US economist at High Frequency Economics, warns that unresponsiveness to good news about housing and equity markets could indicate a deeper shift in the way Americans will spend.

Consumers also expressed fear about the next six months, as the expiration of jobless benefits and the homebuyer tax credit are looming obstacles.

A bright note yesterday was that US home prices have risen for the fourth consecutive month. They rose by 1.2 per cent from July to August, according to the S&P/Case-Shiller index, with 17 of 20 cities reporting monthly gains.

The Financial Times October 2009

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