U.S. Economy Grows for First Time in Over a Year

The recession might not be over, but at least the contraction is. In the 3rd quarter our nation’s economy expanded for the first time in over a year. The nation’s gross domestic product expanded at an annual rate of 3.5 percent for the quarter that ended in September according to the Commerce Department. This expansion matches the average growth rate of the past 80 years and is a sign that things might be getting back to normal.

Before you get too excited though realize that this growth rate was spurred by various government programs to encourage consumer spending. These programs while good in the short term are not really a solution for long term growth. We simply can not constantly be running programs like Cash for Clunkers. These are merely band-aids that lead people to suspect that the economic recovery will not last.

The New York Times has an excellent article by Catherine Rampell entitled “U.S. Economy Began to Grow Again in 3rd Quarter” that details these findings. While the findings are cause for celebration, the optimisim at this point has to be a cautious one.

“The big-picture perspective is that things have improved,” said Jan Hatzius, chief United States economist at Goldman Sachs. “The question is, how sustainable is this growth going forward?”

For most people, the recovery will not feel real until jobs are more plentiful and the housing market improves. Jobs may still be hard to find well into 2010, economists say. A government report to be released next week is expected to show that unemployment rose again this month.

That means that while the recession has been “likely over” for about a month now  according to Federal Reserve Chairman Ben Bernanke, we’re still going to feel like were in a recession. If that’s the case, then what good is this expansion really.

An expanding economy though is certainly better than one that is shrinking. You don’t have to be a Harvard economist to figure that out. A shrinking economy is what we had been dealing with now for quite awhile. The nation’s gross domestic product is the broadest measure of the government’s total goods and services produced and is thus a key component of determining the overall health of the economy. GDP has been shrinking for over a year and had bottomed out at an alarming 6.4% decline during the first 3 months of the year. That of course was cause for great concern so its certainly nice to see it finally headed back in the right direction. Whether or not the growth will be sustained though is now the question on every body’s minds.

Many economists worry that the effects of these government initiatives will be short-lived and that the next few quarters may show sluggish growth or even a second dip.

The Obama administration has argued that even temporary government programs may make families feel more comfortable with spending and business more comfortable with making bigger investments for the longer term.

So while the tangible economic effects of these programs are of course short term, what we’re looking for is longer lasting psychological effects. That’s really the overall goal of these programs. The government is hoping that by helping people get a new car, they will in turn become more optimistic about their future and start spending money. The problem with that thinking, is that they need to have money to spend.

While cautious, at least there is a little bit of optimism floating around these days. While things might not be progressing as fast as most people want, they are progressing. The cautious approach probably is the best for long term growth as well. Like with pretty much anything in life, in order to build something the right way its best to take things slow. So I urge people just to have a little bit of patience and try and ride out the last little bits of the storm. Things are heading in the right direction. These economic indicators show that the building blocks are being put into place. Of course the job market is the one that everyone is looking to for improvement, but in order for that piece to be put in place we need a solid foundation. That solid foundation is getting into place and the only thing we need now is a little bit of time.