The economy posted modest growth in its final report card ahead of crucial mid-term elections, expanding by just 2 percent as consumers remained cautious amid continued high unemployment.
The Commerce Department report released Friday showed the July-September quarter slightly outpaced the previous three months, when GDP grew by just 1.7 percent. The latest data quelled fears of a double-dip recession and showed that the economy was slowly mending after the worst downturn since the Great Depression.
But Austan Goolsbee, the chairman of the White House Council of Economic Advisers, said, “Given the depth and severity of the recession, considerable work remains before our economy is fully recovered. ”
The 2 percent growth in the third quarter falls far short of what is needed to reduce unemployment, which at 9.6 percent is a more important piece of data to most voters, said Brian Wesbury, chief economist at First Trust in Chicago.
“What it boils down to is the unemployment rate going into the final months of an election matters more than the GDP rate,” Wesbury told NPR. “We saw this in 1992, when GDP was accelerating even though it was doing so within the context of a jobless recovery.
“So far, that’s kind of the way the data feels to people today,” he said.
The government’s latest snapshot of the country’s economic health comes just days before Americans go to the polls to elect a new Congress.
Angry voters could cost Democrats control of the House, and maybe the Senate. The fragile economy means Americans with jobs are seeing scant wage gains and those out of work are facing fierce competition for the few openings that become available. Home foreclosures have soared.
Speaking on Thursday, White House press secretary Robert Gibbs tried to put the best face on the bleak economic picture, reminding Americans of the situation the President Obama inherited from his predecessor, George W. Bush.
Gibbs said the economy had gone from “contracting at 5 or 6 percent, losing 700,000-800,000 jobs a month to one that is growing in a positive direction and adding jobs.”
Wesbury also sees bright spots in the report, highlighting consumer spending, which rose at a 2.6 percent annual rate, the biggest quarterly increase since the end of 2006 before the recession hit. Consumer spending accounts for roughly 70 percent of national economic activity and plays a major role in economic growth.
Business investment also picked up in the latest report, with spending on equipment and software up at a 12 percent pace.
“In the last 6 months, demand has accelerated quite nicely, but it’s being hidden in the GDP report because of a big surge in imports from abroad,” Wesbury said.
He expects growth to pick up more in the fourth quarter.
But other economists were less optimistic.
Ken Mayland, president of ClearView Economics, said the economy is “just muddling along.”
“I think it is going to be hard to break out of this sluggish-growth rut,” he said.
A new AP economic survey estimates fourth-quarter growth at 2.4 percent. If that’s the case, the economy will end 2010 on weaker footing than it started.
Meanwhile, the Fed is all but certain to launch a new aid program next week — buying government bonds again in a bid to make loans cheaper, spur people to spend more and guard against a dangerous deflationary spiral.
Scott Sumner, an economics professor at Bentley College, said as much as anything, the Fed’s goal is to shape expectations of the economy’s direction.
The Fed is “trying to create an impression in the markets that they won’t fall into the same [deflationary] trap as Japan in the 1990s,” Sumner told NPR.
Some fear stimulating inflation could work too well. If the economy picks up and the Fed doesn’t act quickly enough to put the brakes on, there’s the possibility of hyperinflation.
“But the Fed is quite confident that it can basically suck the money back out of the economy as soon as we get a real turnaround,” Sinclair said.