By: Mike Campbell
As widely expected, official figures released yesterday have shown that the USA is no longer in recession. As welcome as this news is, it needs to be kept in perspective; all it means is that the US economy managed to grow (rather than contract) in the most recent quarter – against a shifting baseline. There is still a lot of pain and uncertainty to come before the good times will return for the guy on the street.
The Q3 figure indicates an annual GDP of 3.5% and is the first positive number for more than a year. Of course, the “return to growth” comes on the back of an extraordinary public sector financial stimulus package which included life-lines to financial institutions and car makers as well as the so-called “cash for clunkers” scheme which provided incentives for the public to replace old cars. There is considerable concern that when the financial props are removed (as they must be) the economy will be in for a very bumpy landing – but hey; let’s enjoy the moment!
The US stock markets cheered the news by reversing the declines of the previous day (which were based on doubts about the strength of the recovery) with the Dow Jones closing up by 2.1% and just short of the 10 000 point threshold (9962.6).
The obvious elephant in the US economy (and globally, for that matter) is unemployment. Once the number of people finding jobs (rather than looking for them) improves then the global economy will be in a recovery phase. US unemployment is almost at the one worker in ten level and many analysts expect the situation to worsen before it gets better. It is a complicated dance – 70% of US GDP comes from domestic economic activity: people are understandably reluctant to spend money when their employment is uncertain. I predict that it will be an interesting festive season from a retail perspective and that lots of bargains will be on offer as merchants try to tempt us to part with our money.