Economic recovery coming

Jerome Idaszak, an associate editor with Kiplinger, suggests GDP growth could increase as much s 3% in the third quarter, a move that would end four consecutive quarters of GDP declines.

“But any ebullience has to be tempered. That’s because the key to this recovery so far is federal government spending,” Idaszak notes in this commentary.

He notes that housing sales are up due to a federal tax credit of $8,000 for first-time home buyers, and the $3-billion cash-for-clunkers program expanded unit car sales by 16% in July and is encouraging automakers to boost production.

“Elsewhere, consumers are still worried about losing jobs or struggling to cope with salary cuts or shorter workweeks and smaller paychecks. As a result, there isn’t much sustained buying of clothes, electronics, restaurant meals, sporting goods, appliances and furniture,” according to Idaszak.

Other notes in his report include:
• We expect the pace of the recovery to wane in the fourth quarter, with GDP growing only about 2% over the entire second half of the year.

• Growth in 2010 is likely to be moderate. What’s needed to pump up GDP is consumer spending, which accounts for about 70% of economic activity. And that won’t improve until job growth resumes with enough strength to halt rising unemployment, not likely before next spring.

• The strong second quarter productivity increase of 6.4% will enable companies to reap profits as orders pick up, and it will ease inflation pressures.

• The reasons for future concerns about inflation include large federal budget deficits, fears that the dollar will weaken, thus raising import prices, and that a global recovery will raise commodity prices.