The American economy grows again

So the US is out of recession. Unlike last Friday’s spectacular misprediction, the economists got this one right. In fact the markets shot up because the US’s 3rd quarter GDP figure showed 3.5 per cent growth (annualised).

So on an internationally comparable definition of recession (multiple consecutive quarters of contraction) the US has exited recession. It’s worth noting that within the US itself the NBER defines recessions in a different way, and is yet to pass judgement on this matter. What we can definitively say is that growth has returned to America, in a way that it hasn’t returned, for example, to Britain.

Breaking down the numbers there was some impressive growth in consumer spending and residential investment. Businesses seem to be successfully clearing out their inventories, which also added to growth. The question is whether businesses can lick themselves back into shape quick enough to offset the severe pressure on consumer spending that will arise from near 10 per cent unemployment – the worst set of figures for nearly three decades.

This also underlines the role of America’s massive stimulus programmes. I visited a few of them in August. One a newly-laid airport runway at a municipal airport in Elkhart, Indiana. Unashamed Keynesianism in the backyard of the University of Chicago. In Baltimore, land of The Wire, stimulus dollars paid for a new ferry taxi service across the bay where McNulty and Bunk can often be seen clueless and drunk. There is a remarkable map of US Keynesianism at Recovery.org.

So for those that crow that the US is out of recession and Britain is not. Well the logical next step in that argument is for Britain to have had a stimulus on the US scale. It is absolutely no coincidence that, as predicted here on Friday, George Osborne markedly piped down his rhetoric on cutting the deficit this year, during his speech on Monday.

Today’s figures from the US are an argument against too hasty a fiscal contraction, even given our admittedly parlous budget deficits.