The United States economy appeared to shake off the recession this past quarter, growing by a times-aren’t-so-bad 3.5 percent. But although the rosy figure was better than expected, the economy is not out of the woods yet.
“I would not expect the performance to be so good in the next quarter,” said Sergio Rebelo, professor of finance. “Usually we like to see solid numbers that are relatively even” across the different sectors of the economy, he added, noting that this quarter (pdf) was buoyed by increases in durable goods, residential investment, and exports. “When you get out of a recession, what you like to see is all the numbers looking good, not just one or two.”
Two government programs are partially responsible for the good third quarter showing—cash for clunkers and the first-time home buyer credit. The cash for clunkers car trade-in program helped the ailing auto industry post good numbers, but will likely hurt sales figures for the coming months. “What the program does,” Rebelo said, “is bring forward purchases that were going to happen in the future.”
First-time home buyers also helped bolster the economy, thanks to a generous $8,000 government tax incentive. In fact, the scheme’s impact was so great that first-time buyers represented a full 40 percent of sales between April and August, Rebelo said.
Exports were the one bright spot that did not rely on the assistance of a government program. Aided by a weak dollar, U.S. exports grew by 14 percent, a positive trend Rebelo thinks will continue through the next quarter. The last time exports increased was the third quarter of 2007.
Without the government programs to support residential investment and durable goods, next year may still suffer from anemic growth. Still, there is hope that the stimulus plan may step in to spur growth. The bulk of the package won’t have an effect until next year. “It is possible that then the stimulus money will start kicking in and we’re going to see better performance going forward,” Rebelo said.
While this quarter’s growth technically broke the recession’s back—the traditional definition is two quarters of contraction—Rebelo notes the definition the National Bureau of Economic Research uses is “something much more informal and complicated.” The NBER will analyze their data many times over, he added, and the numbers they release will likely be revised.
“It’s never announced in real time,” Rebelo said. “We will only know if we are out of a recession in a year from now.”