U.S. economic growth improved during 2011's July-September quarter, especially when compared to the absolutely anemic economic performance during the year's first half. Similar to slightly softer economic growth seems on tap in coming quarters, with plenty of obstacles to be dodged along the way.
U.S. GDP, the most inclusive of all measures of economic activity taking place on U.S. soil, grew at a 2.5% real (after inflation) annual rate during the third quarter, matching the consensus view of forecasting economists. The 2.5% growth pace greatly exceeded the 1.3% real annual growth pace of the second quarter and the truly pathetic 0.4% growth pace during the January-March 2011 quarter.
The new data has, for the moment, dampened the worst case forecasts of those economic prognosticators calling for an imminent return to recession. One particular economic bear who suggested a few months ago that "another recession was 99% certain" may wish such a forecast was never made. Even as economic growth improved, it still lags the 3.0%-4.0% real annual growth pace needed to bring the nation's unemployment rate down from the 9.0% average of the past three years. Given the obstacles (or headwinds) faced within the economy, including the painful reductions of recent years in home prices, anxiety about the European debt crisis, distaste for higher taxes for those who invest and create jobs, and our domestic frustration about government spending out of control, such stronger growth seems only a dream at the moment.
The American consumer spent money more aggressively during the third quarter, with personal consumption rising at a 2.4% rate. Such growth rose at a miniscule 0.7% pace in the prior quarter.
It would be nice if such spending acceleration was tied to rising consumer incomes. Instead, it was tied to a less aggressive savings pace, with "the savings rate" growing at only a 4.1% annual rate, the lowest in nearly four years.
American businesses also stepped up their spending pace during the third quarter, with investment in equipment and software rising at a 17.4% annual rate, the strongest pace in a year. However, a move to qualify for attractive tax incentives with calendar year 2011 purchases likely accounted for much of the rise.
One other piece of economic trivia, although an important one, was found in the data. The American economy finally exceeded the real pre-recession peak of total economic output during 2007's final quarter. It took 15 quarters to offset the 5.1% decline in output during the Great Recession. This was three times the average number of quarters needed to reach the prior peak in other post-WWII recessions.
Down the Road
The Great Recession was a massive hit to the American economy, as well as to economies around the globe. Here's hoping we can skate through the European debt crisis and our own deficit spending crisis without another major economic hit … stay tuned.
Jeff Thredgold is the chief economist for Zions Bank and founder of Thredgold Economic Associates, a professional speaking and economic consulting firm. Visit www.thredgold.com.
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