US Economy: GDP Increase of 3.3% - What does it Mean?

By: CaraTan   Date: 2 September 2008

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CaraTan

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New York, 2 Sep. Seemingly never-ending woes about oil, war, and inflation have had the world bracing for recessions and hard economic times in general. But the US has experienced an unexpectedly high annualized growth rate of 3.3% in Q2.

The Commerce Department estimated this growth would be only 1.9%. Much of the increased growth can be attributed to healthy exports from a weakened US dollar and a stimulus package. Consumer spending increased by 1.7%, in contrast to Q1’s rise of 1.5%.

“What recession?” asked Paul Ashworth of Capital Economics. “US growth was not only the strongest in the G7 but it was above the economy’s potential rate of 2.5 per cent to 3 per cent.”

This is certainly good news for Americans at the petrol pumps. The stimulus package, in the form of$600 tax rebates made by the government, contributed to the growth. This $100 billion stimulus package has resulted in some economic activity, but it is by no means a solution, and its effects are likely over.

Does this mean we have nothing to fear? Not necessarily. The unemployment rate has risen a point in the past year, according to Citigroup economist Steven Wieting, who maintains that that figures on new employment are "still recessionary."

The housing slump continues to hold growth back, with residential property investments dropping 15.7%. This is, however, better than the 25.1% decline in Q1. Nevertheless, the housing crisis is still experiencing price falls on a national scale, suggesting the downturn will not end soon. Government reports say this slump is at a 16-year low.

Furthermore, it is doubtful that the US economy can maintain such good exports for long with declining economies overseas. While the US dollar has been weakened (making it easier for foreign buyers to order products from the US), many of these foreign currencies may be weakening too.

And according to chief US economist at BNP Paribas, Brian Fabbri, "The GDP figure may not say it but this country is still in trouble. Corporate profits have fallen for four consecutive quarters, companies have fired 60,000 workers a month in the past seven months and the outlook for the economy is pretty grim."

While this high growth figure is good news – it’s better than a no-growth figure – it doesn’t solve the fundamental economic problems in the US today. Until the housing market recovers and the unemployment rate stabilizes, fears of recession will still dominate.

Ron Portobello, EconomyWatch.com

 


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