Growth jumps, but economists say recovery now at hand

WASHINGTON — Thanks to exports, the U.S. economy grew much more quickly in the spring than was originally believed, a government report showed Thursday.

So is it time to celebrate a recovery?

Not so fast, economists say. The surprisingly strong second quarter reflected a surge in U.S. exports, which is fading now.

"What we were getting was one of the last bumps off of exports," said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University in Atlanta. In the first half of this year, U.S. shipments to other countries benefited from a weak dollar and strong overseas demand for goods and services, he said.

Since then, the dollar has strengthened. Moreover, "Europe is clearly having very slow growth and ... in Asia, things have really slowed in the last couple of months," Dhawan said. "As the rest of the world slows down, the trouble (for U.S. exporters) will be going forward."

In its original estimate, the government said second-quarter gross domestic product, a measure of all goods and services produced, had climbed 1.9 percent. That was better than the first-quarter GDP increase of 0.9 percent, but still feeble.

On Friday, the Commerce Department said new economic data showed GDP growth actually hit 3.3 percent in the April-June period. That's a healthy rate, suggesting the country was far from recession. The revised data showed that exports rose 13.2 percent, instead of 9.2 percent as originally reported.

The news about consumers was also slightly better than initially reported. Second-quarter consumer spending rose 1.7 percent, better than the previously reported 1.5 percent increase and well above the 0.9 percent rise in the first quarter.

The better-than-expected report helped send stock prices soaring. The Dow Jones industrial average rose 212.67 to close at 11715.18.

Still, most economists agree with Dhawan's assessment that the economy is far from out of the woods. They noted that consumer spending got a boost this spring from the federal income-tax rebate checks mailed to most wage earners. But the last of the checks were mailed in July, so the help is waning.

Also, the data showed the housing sector still faces big trouble. In the second quarter, residential fixed investment, which includes spending on housing, fell 15.7 percent, a bit worse than the original estimate of 15.6 percent. That was better than the first quarter's 25.1 percent decline, but still grim.

U.S. Chamber of Commerce chief economist Martin Regalia, who presented his outlook at the chamber's annual Labor Day briefing, said he expects growth to fall to a 1 percent annual rate this quarter, and then slip to zero or worse in the fourth quarter.

"The U.S. economy is still grappling with high oil prices, a stagnated housing market and turmoil in the credit markets," Regalia said. "I don't see these issues going away any time soon."

Nigel Gault, the chief U.S. economist for Global Insight Inc., a forecasting firm, echoed that gloomy assessment. "Since consumer spending is slowing down and the credit crunch is tightening its grip, it is hard to foresee another quarter with such a robust GDP headline for some time," he wrote.

In a separate report Thursday, the Labor Department said that in the week ending Aug. 16, the total number of workers drawing unemployment benefits for more than one week rose 64,000 to 3.4 million, the highest level since November 2003.

Florida reported more workers filing initial jobless claims than any other state.

David Denslow, an economics professor at the University of Florida, said the jump in Florida's jobless claims is "tied to the ongoing housing problems."Denslow said problems with falling home values and large inventories of unsold properties are improving, "but it will be a while before construction jobs pick up, probably not until the middle of next year."

News about the economy spurred liberals and conservatives to offer sharply varying assessments.

John Sweeney, president of the AFL-CIO, a labor union umbrella organization, issued a statement criticizing Republican economic policies. "Since President Bush took office, we have lost more than 3 million good manufacturing jobs. Poverty has increased 25 percent (and)... gasoline has risen from $1.50 to $4 a gallon."

Taylor Griffin, a spokesman for presidential candidate John McCain, used the GDP report to talk up the Republican's support for global trade. The growth in exports "is a reminder that trade is a significant bright spot in an otherwise struggling economy," he said.

Marilyn Geewax is a Washington correspondent for Cox Newspapers.