Economy growing but recovery could be at risk

WASHINGTON – Fueled by government stimulus, the economy grew last quarter for the first time in more than a year. The question now is, can the recovery last?

Federal support for spending on cars and homes drove the economy up 3.5 percent from July through September. But the government aid — from tax credits for home buyers to rebates for auto purchases — is only temporary. Consumer spending, which normally drives recoveries, is likely to weaken without it.

If shoppers retrench in the face of rising joblessness and tight credit, the fragile recovery could tip back into recession.

For the Obama administration, the positive report on economic growth is a delicate one: It wants to take credit for ending the recession. On the other hand, it needs to acknowledge that rising joblessness continues to cause pain throughout the country.

Millions of Americans have yet to feel a real-world benefit from the recovery in the form of job creation or an easier time getting a loan. Even those with jobs are reluctant to spend. The values of their homes and 401(k)s remain shrunken.

President Barack Obama called the report "welcome news" in remarks prepared for a small-business group but acknowledged that "we have a long way to go to fully restore our economy" and recover from the deepest business slump since the 1930s-era Great Depression.

"The benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we are creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well," Obama said.

The rebound reported Thursday by the Commerce Department ended the record streak of four straight quarters of contracting economic activity.

The news lifted stocks on Wall Street. The Dow Jones industrials average gained about 150 points in afternoon trading and broader indices also rose.

But whether the recovery can continue after government supports are gone is unclear. Many economists predict economic activity won't grow as much in the months ahead as the bracing impact of the government's $787 billion package of increased government spending and tax cuts fades.

The National Association for Business Economics thinks growth will slow to a 2.4 percent pace in the current October-December quarter. It expects a 2.5 percent growth rate in the first three months of next year, although other economists believe the pace will be closer to 1 percent.

Christina Romer, Obama's chief economist, has acknowledged that the government's stimulus spending already had its biggest impact and probably won't contribute to significant growth next year.

For the third quarter, government support proved crucial. Armed with cash from government support programs, consumers led the rebound in the third quarter, snapping up cars and homes. A jump in spending on big-ticket manufactured goods largely reflected car purchases spurred by the government's Cash for Clunkers program.

Spending on housing last quarter was positive for the first time since the end of 2005. The government's $8,000 tax credit for first-time home buyers supported the housing rebound. Congress is considering extending the credit, which expires Nov. 30.

Federal government spending rose at a rate of 7.9 percent in the third quarter, on top of a 11.4 percent growth rate in the second quarter. And businesses boosted spending on equipment and software at a 1.1 percent pace, the first increase in nearly two years.

Third-quarter activity also was helped by increased sales of U.S.-made goods to customers overseas, as economies in Asia, Europe and elsewhere improved. The cheaper dollar is aiding U.S. exporters, making their goods less expensive to foreign buyers. Exports of U.S. goods soared at an annualized rate of 21.4 percent in the third quarter, the most since the final quarter of 1996.

Businesses, meanwhile, reduced their stockpiles of goods less in the third quarter, after slashing them at a record pace in the second quarter. With inventories at rock-bottom levels, even the smallest increase in demand probably will prompt factories to boost production. This restocking of depleted inventories is expected to help sustain the recovery in the coming months, economists said.

Still, with unemployment at a 26-year high of 9.8 percent and credit hard to get, the recovery faces obstacles.


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WASHINGTON – After months of struggle, House Democrats rolled out sweeping legislation Thursday to extend health care coverage to millions who lack it and create a new option of government-run insurance. A vote is likely next week on the plan largely tailored to President Barack Obama's liking.

Speaking on the steps of the Capitol, Speaker Nancy Pelosi said Congress was at a "historic moment" with lawmakers "on the cusp of delivering on the promise of making affordable, quality health insurance available to every American."

Officials said the measure, once fully phased-in over several years, would extend coverage to 96 percent of Americans. Its principal mechanism for universal coverage is creation of a new government-regulated insurance "exchange" where private companies would sell policies in competition with the government. Federal subsidies would be available to millions of lower-income individuals and families to help them afford the policies, and to small businesses as an incentive to offer coverage to their workers.

Large firms would be required to cover workers, and most individuals would be required to carry insurance.

The ceremony marked a pivotal moment in the Democrats' yearlong attempt to answer Obama's call for legislation to remake the nation's health care system by extending insurance, ending industry practices such as denying coverage on the basis of pre-existing medical conditions, and slowing the growth of medical spending nationwide.

Across the Capitol, Senate Democrats, too, are hoping to pass legislation by year's end. Legislation outlined by Majority Leader Harry Reid earlier this week would include an option for a government-run plan, although states could drop out if they wished, a provision not in the House measure.


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