Tuesday, January 3, 2012

U.S. Economy Still Chugging Along

In a recently released report from the U.S. government, economic growth has increased, showing the most solid rate of expansion in a year.

In an article by Neil Irwin on www.washingtonpost.com, the GDP (gross domestic product) swelled at a 2.5% annual pace during the third quarter 2011, according to figures from the Commerce Department. This is much better than the 1.3% gain seen in the second quarter and the 0.9% rate of growth for the first half of this year.

Despite ongoing fears of a forthcoming economic collapse throughout Europe and a downgraded status of the U.S. debt, the numbers indicate a U.S. economy that “will keep on truckin’”.

However (there always seems to be a ‘however’), the GDP, which is the broadest measure of economic activity, is not strong enough to significantly reduce the unemployment rate in the foreseeable future.
The 2.5% increase, instead, represents a break-even point in U.S. economic growth;  “the approximate rate of economic expansion that would be expected, given an ever-increasing labor force and rising worker productivity, but not enough to put many of the 14 million unemployed Americans back to work.”

Third quarter growth was strengthened when automobile supply chains that had been disrupted by the Japanese earthquake reopened and oil prices moderated (somewhat) after peaking in early 2011.

The GDP, which ascertains the value of goods and services produced within U.S. borders, were overall more favorable than had been earlier expected. Consumer spending rose at a 2.4% annual rate, showing that we are still shopping, despite a low level of American consumer confidence. As we write this just days before Christmas, U.S. shoppers are hitting the malls, Main Street and Internet shops with a vengeance not witnessed for several years. Economists who were skeptical as to the efficacy of the holiday retail numbers are (happily) wiping the egg from the faces, as cash registers chime out in time with Salvation Army bell-ringers.

In addition to stronger-than-anticipated consumer spending, corporate investment was a source of particular strength: spending on equipment and software increased by 17.4%, while spending on structures such as office buildings and factories increased by 13.3%. Trade was also a contributor to growth, with exports soaring at an annual rate of 4%, and imports at a slower 1.9% rate.

The one impediment to U.S. growth, however (there’s that word again), was government. Huge budget cuts by municipalities across the country led spending by state and local governments to decrease at an annual rate of 1.3%.

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