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Recession Officially Over, but Future is Hardly Bright
Thursday, October 29, 2009 7:54 PM


(Source: Chicago Tribune)trackingWASHINGTON _ The U.S. economy expanded at a faster-than-expected 3.5 percent rate in the third quarter, unofficially marking the end of the worst recession since World War II and boosting hopes for the strength of a long-awaited recovery.

But the growth surge, which ended four straight quarters of economic contraction, poses a challenge to Washington policymakers: It was largely a result of a rebound in consumer spending which, in turn, was heavily influenced by federal stimulus spending.

And the Obama administration, under fire from Republicans over the deficit, has thus far ruled out a second stimulus program.

The "cash for clunkers" program is credited with buoying auto sales. The $8,000 tax credit for first-time home buyers helped revive house sales, and extension of unemployment benefits put money in the pockets of people who could be counted on to spend it quickly on life's necessities.

Those programs have ended or are coming to an end, however, and Congress has so far not extended the ones still operating. Moreover, most of President Barack Obama's $787 billion stimulus program is expected to have run its course before the middle of next year.

Also contributing to the upturn has been the Federal Reserve's policy of keeping interest rates low and increasing the flow of credit _ a policy now under attack from fiscal conservatives and deficit hawks.

Moreover, while the size of the economic gain reported Thursday by the Commerce Department was taken by most economists as unexpectedly positive, it exceed what most had expected by only about one-third of a percentage point.

That's a sizable increase in gross domestic product for an economy as big as America's, but it remains well short of what most analysts think will be necessary to brighten the grim unemployment picture or return the country to robust prosperity. GDP, the total of goods and services produced, is the broadest measure of economic activity.

Christina Romer, who heads the White House Council of Economic Advisors, acknowledged Thursday that the current growth forecasts for the next five to six quarters_between 2 percent and 3 percent_would not be robust enough to significantly reduce unemployment, which is now at a 26-year high of 9.8 percent and expected to top 10 percent shortly.

Romer said the stimulus contributed 3 to 4 percentage points to inflation-adjusted 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," she said.

Even with the stimulus, last quarter's growth only partly offsets a dramatic decline of about 6 percent last fall and winter.




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