Can summer growth continue?

Associated Press

WASHINGTON

A summer of modest economic growth is helping dispel lingering fears that another recession might be near.

Whether the strength can be sustained is less certain.

The economy grew at an annual rate of 2.5 percent in the July-September quarter, the Commerce Department said Thursday. But the growth was fueled by Americans who spent more while earning less and by businesses that invested in machines and computers, not workers.

The expansion, the best quarterly growth in a year, came as a relief after anemic growth in the first half of the year, weeks of wild stock-market shifts and the weakest consumer confidence since the height of the Great Recession.

The economy would have to grow at nearly double the third-quarter pace to make a dent in the unemployment rate, which has stayed near 9 percent since the recession officially ended more than two years ago.

For the more than 14 million Americans who are out of work and want a job, that’s discouraging news. And for President Barack Obama and incumbent members of Congress, it means they’ll be facing voters with unemployment near 9 percent.

“It is still a very weak economy out there,” said David Wyss, former chief economist at Standard & Poor’s.

For now, the report on U.S. gross domestic product, or GDP, sketched a more-optimistic picture for an economy that only two months ago seemed at risk of another recession.

And it came on the same day that European leaders announced a deal in which banks would take 50 percent losses on Greek debt and raise new capital to protect against defaults on sovereign debt.

Stocks surged on the European deal and maintained their gains after the report on U.S. growth was released.

If higher stock prices lead consumers to feel more confident about their wealth, they may spend more. That could help sustain economic growth.

The GDP report measures the country’s total output of goods and services. It covers everything from bicycles to battleships, as well as services such as haircuts and doctor’s visits.

Some economists doubt the economy can maintain its modest third-quarter pace.

U.S. lawmakers are debating deep cuts in federal spending next year that would drag on growth. And state and local governments have been slashing budgets for more than a year.

Obama’s $447 billion jobs plan was blocked by Republicans, meaning that a Social Security tax cut that put an extra $1,000 to $2,000 this year in most Americans’ pockets could expire in January.

So could extended unemployment benefits. They have been a key source of income for many people out of work for more than six months.

Nor is the economy likely to get a lift from the depressed housing market. Typically, home construction drives growth during an economic recovery. But builders have been contributing much less to the economy this time.

Wyss said that the collapse of housing probably had depressed annual growth by as much as 1.5 percentage points in the past two years.