So the American recession is over, on paper at least. Go tell it to the eight million or more people who have lost their jobs and remain unemployed, the tens of millions more working shorter hours for lower wages, or the 35 million or so on food aid.
Somehow the third-quarter growth figures from America didn’t grip me as much as the news from Costco, the giant US warehouse club retailer, which has started accepting food stamps at all its 420 outlets across the US.
US growth was an annual 3.5%, above the forecast 3.2% in the first of three estimates from the US Commerce Department. Much of that came as a result of government stimulus spending on cars and the huge support operation for housing by the Fed and the Obama Administration.
While the rebound is welcome, a look at the detail in the report contains some continuing worries.
Household disposable income actually fell 3.4%; but consumer spending rose, also by 3.4%. This is not sustainable. It is not consistent with the rising level of savings and the still urgent need for US families to cut their debt, which they are doing voluntarily, or involuntarily by being forced to sell their homes or seeing their banks withdraw credit cards or slash credit limits.
Consumer spending largely rose because of the big rise in expenditure on durable items, led by cars, which was in turn driven by the cash-for-clunkers scheme. The tax credit for home buyers could end; it could be extended, but it will fade eventually, leaving the Fed, Freddie Mac and Fannie Mae, as the only supports for a still deeply depressed sector.
Consumer confidence is falling, meaning there is no strong belief among Americans that things will get better (as there is in Australia, for instance).
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Unemployment is not improving: the growth in the number of jobless might be easing (and we get an update a week today), but combined with 6.3 million home foreclosures, the capacity for consumption to continue to support the economy is weak. And there’s nothing in exports or business investment that is capable of assisting.
As Fed chairman Ben Bernanke has warned many times, the recovery won’t feel like one because of the high levels of unemployment, which are not going to fall any time soon.
It was good news, but the Costco news was more dramatic, emphasising the still-horrid state of the economy and the grim reality of everyday American life.
Costco joined Wal-Mart’s food clubs and big grocery chains such as Kroger in accepting the government-issued food relief currently give to more than 35 million Americans.
That’s about 11% of the American population and is up more than seven million in the past year.
Despite the American third-quarter growth figures, the real story of the current health of the American economy will be found in the statement at the end of next week’s two-day Federal Reserve meeting in Washington.
Specifically people will be looking at the wording in the post-meeting statement, as we saw in September.
The committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
No matter what the first reading on third quarter growth says, and other data, the still deeply sluggish state of the American economy can be found in that paragraph.
The growth figures do, however, give some confidence that the economy is at least growing. It was much better than the 0.7% fall in the second quarter and the 6.4% plunge in the three months to March. And it showed what government stimulus spending can do, despite the opposition from myriad Republicans, Democrats and other right wing hard money gold loving nutters.
And the US figures at least tell us (and Americans) the economy has move out of the red, unlike the terrible shock the UK received a week ago when the first estimate of third-quarter growth was a negative 0.4% (instead of the widely forecast positive 0.2% rise), which meant the country was now in the longest slump since the 1930s.
But no amount of boosterism or optimistic forecasting will change the grim reality that there’s more do, years in fact, before the US economy is right sized and rebalanced.
More than 100 banks have gone bust so far this year.
The markets went mad of course, reversing their bad hair day from the day before. Wall Street jumped, the US dollar fell, gold, oil, copper and the Australian dollar rose, US 10-year bond yields hit 3.50%. The nasty sell-off of the past few days will be glossed over now for another few days or weeks.
That will be of little use to the millions on food stamps as they shop at Costco’s 420 stores this weekend.
The retailer was forced by politicians and lobby groups to start accepting food stamps at six New York City stores earlier this year and found to its surprise that this led led to a rise in memberships and sales.
The grim reality of the Costco decision: more and more Americans need every bit of help they can get, even if they are in a job and still have their homes.