US out of recession – but it’s too early to celebrate

America has officially emerged from recession, its economy expanding at an annual rate of 3.5 per cent in the three months to the end of September.

Government stimulus spending and improved consumer spending (largely buoyed by the cash-for-clunkers programme) as well as a slight improvement in housing prices finally pushed GDP into positive territory for the first time in four quarters.

Can you hear champagne corks popping? Yes, but muffled.

Growth in the world's largest economy only fractionally exceeds economists' estimates. There is still widespread concern that the figures are artificially supported and dependent on government spending, and that there is unlikely to be any improvement in unemployment figures for months to come.

Still, the economic growth has come without a major surge in inflation - a major concern for policymakers toying with when to raise interest rates or whether to increase government aid that's already on track to wallop the Obama administration with a record $1.4 trillion budget deficit.

But if the boost in US consumer spending, which accounts for about 70 per cent of the economy, is largely down to the administration's "cash-for-clunkers" vehicle trade-in plan, and stimulus spending accounts for most new investment, what kind of recovery is that?  

"A lot of this is thanks to government support," Kathleen Stephansen, chief economist at Aladdin Capital told Bloomberg. "We still have major headwinds. The consumer - in fact, private demand in general - is not ready yet to pick up the growth baton from the government."

Further, a poll of investors shows an eight-month, 68 per cent rally in global stocks has yet to cleanse them of worries over the US economic policy and the cohesion of the banking system. Thirty-one per cent said they saw investment opportunities, down from 35 per cent in July.  More than 50 per cent of US investors told Bloomberg they are in a defensive crouch.

"The doubt and the pessimism just won't go away," said James Paulsen at Wells Capital Management in Minneapolis. "They're still so shell-shocked by what they went through despite the improvement in the market and the economy."

Still, growth is growth and it brings to a close the worst performance in the US economy in over seven decades. ·