WASHINGTON — The U.S. economy roared to life this past summer as an array of government actions led to the strongest quarter of growth in two years.
The Commerce Department reported Thursday that the nation’s gross domestic product rose at a 3.5 percent annual rate in the July-through-September quarter, the strongest evidence yet that the country has begun to emerge from the deepest downturn in decades.
But there were few signs in the new data that the private sector will be able to sustain that growth once the government pulls back or that the rise will soon translate into an improving job market.
Unemployment has continued rising in recent months, to 9.8 percent in September, as businesses remained reluctant to hire.
“We’ve had a technical end to the recession, which is something that economists and bankers like to talk about,” said Robert Dye, senior economist at PNC Financial Services Group. “But it’s not going to feel like we’ve had an end to the recession on Main Street until unemployment starts to go down.”
Wall Street, nevertheless, was cheered by the better-than-expected numbers, and the Standard & Poor’s 500 rose 2.3 percent Thursday.
The renewed growth of the U.S. economy — which followed a 6.4 percent rate of contraction in the first quarter and a 0.7 percent rate of decline in the second — was driven by sweeping government interventions, including the Cash for Clunkers program to stimulate auto sales, a first- time-homebuyer tax credit and other policies to stimulate housing, and the rollout of federal stimulus spending.
Economists are wary about what happens as those programs recede.
Cash for Clunkers is already over, Congress is looking to extend the homebuyers tax credit through the first part of next year, and stimulus spending is set to taper off over the course of 2010.
For the expansion to be sustained — let alone accelerate enough to create steady job growth — businesses must gain enough confidence to invest in the future, consumers will need to once again make purchases absent government incentives, and buyers of American products abroad will need to open their wallets, economists said.
Jan Hatzius, chief economist of Goldman Sachs, said the government’s fiscal intervention and efforts by businesses to rebuild inventories probably contributed about 4 percentage points to GDP growth.
“We’re going to lose those 4 percentage points over the next year, and so the private economy and the underlying organic growth path needs to pick up that much to offset it,” she said.
As if underscoring the continued hard times for workers, the Labor Department said in a separate report Thursday morning that 530,000 people filed new applications last week for unemployment-insurance benefits.
“There’s no champagne in our office until we start adding jobs, and not just adding jobs but adding enough that unemployment is going down,” said Christina Romer, chairwoman of the Council of Economic Advisers, speaking to reporters at an event organized by the Christian Science Monitor.
