Spring Gives The Economy a Much Needed Bounce
Thursday, August 28, 2008SUSIE GHARIB: Stocks soared on Wall Street today on two big surprises: a sharp drop in oil prices and a sharp rise in economic growth. The Dow jumped 212 points and the NASDAQ rose 29. The rally came after the Commerce Department reported the nation's gross domestic product grew at an annual pace of 3.3 percent in the second quarter. That was much stronger than the initial estimate of 1.9 percent. But as Erika Miller reports, that strong performance doesn't mean the economy is out of the woods.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Despite all the talk of doom and gloom, the U.S. economy roared back with gusto in the second quarter. The economy grew at a 3.3 percent annual rate after two dismal quarters. But that does not mean the U.S. has avoided recession. Like most economists, Lakshman Achuthan thinks we are in one now.
LAKSHMAN ACHUTHAN, MANAGING DIRECTOR, ECONOMIC CYCLE RESEARCH: I think the second quarter is the proverbial flash in the pan. It is not the beginning of a cyclical recovery.
MILLER: He points out that much of the growth in the second quarter came from strong demand for U.S. products overseas. But he does not think the trend will continue, due to a rising dollar and slowing growth in many countries.
ACHUTHAN: You have Europe going into recession. Southern Europe is already in recession, Japan, going into recession. Mexico and Canada, where we trade quite a bit, in clear downturns. This is going to weigh without a doubt on exports.
MILLER: In addition, the second quarter was helped by government tax rebate checks, which encouraged spending by U.S. consumers. But Merrill Lynch economist Drew Matus says that effect is only temporary.
DREW MATUS, ECONOMIST, MERRILL LYNCH: The analogy I'd like to use is, if you give your kid $100 and you tell him to spend it and then you don't give your kid $100 the next week, what happens to the spending pattern there? And that's exactly what we're going to see with the tax rebates.
MILLER: However, a small group of economists thinks the U.S. will able to eke out modest growth in coming quarters. They say the dollar's appreciation is not as worrisome as it seems because there's often a long lag time between changes in currency values and trade activity. In addition, they believe the dollar rally will help push down commodities prices and boost global economic activity. But others aren't buying it.
MATUS: Our forecast is for the second half of 2009 to post GDP prints above 2 percent. I think by that point, you are talking about being - I guess being out of the woods is the right way of putting it.
MILLER: That helps explain why many economists support another round of stimulus from the government. They argue the economy needs all the help it can get, until the labor markets improve and housing prices stabilize. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
