Is America Out Of Recession?

On UK Telegraph: The grim reality is that America is not out of recession

• The grim reality is that America is not out of recession
  
  By Liam Halligan, Economic Agenda
  Published: 6:28PM GMT 31 Oct 2009
  
  So I was pleased last week when I heard that, after four successive quarters of contraction, America's economy grew by an impressive 3.5pc between July and September, compared to the quarter before. "The US is out of recession" numerous newspaper headlines screamed. No wonder share prices surged.
  
  As ever, the numbers warrant a closer look. For one thing, this is annualised data. So the US economy actually expanded by only 0.9pc during the third quarter – a fact most newspaper reports ignored. What growth we did see resulted from a 3.4pc annualised rise in US consumption between July and September, which was in turn caused by a 22.3pc spike in spending on consumer durables.
  
  That increase, though, was largely driven – quite literally – by last-minute vehicle purchases under the soon-to-expire "cash for clunkers" scheme. The much-trumpeted rise in residential construction – the first in four years – was also dependent on a temporary tax credit for first-time buyers. In other words, this latest US growth spasm stemmed from one-off government "giveaways" – with the public only able to take advantage of such gimmicks by going deeper into debt. The rise in US consumption coincided with a 3.4pc fall in household disposable income and a plunging savings rate too. With government and household debt spiralling anew, America's so-called "return to growth" is nothing but a return to higher leverage.
  
  Consumer spending makes up 70pc of the US economy. So we should all be concerned that after a "euphoric" third quarter, the mood darkened significantly this month. The respected Conference Board measure of consumer confidence just plunged to a 26-year low, which is hardly surprising. US unemployment, now at its highest since the early 1980s, is still rising fast.
  
  Extremely weak consumer sentiment is a stark reminder of how fragile the world's largest economy remains, not least as the "bold" stimulus measures subside. The grim reality is that America isn't out of recession, whatever your stockbroker tells you. Over the last 40 years, all US slumps have been interrupted by at least one quarter of positive growth, followed by a renewed downturn.
  
  America hasn't yet recovered and it won't anytime soon – not unless President Obama finds the courage to hose down his friends in the banking sector and force them to start lending.