Federal support for consumers' spending on cars and homes drove the economy up 3.5 percent in the third quarter, the Commerce Department reported yesterday.
It marked the first increase in the nation's economic activity, as measured by the gross domestic product, after falling for four straight quarters - the longest stretch of declines since quarterly recordkeeping began in 1947.
But the government aid - tax credits for home buyers and rebates for auto purchases - is only temporary, as is federal stimulus spending on highway, environmental, and other projects. Without the aid, consumer spending, which normally drives recoveries, is likely to weaken. The "Cash for Clunkers" auto rebates ended in August; the tax credit for first-time home buyers is likely to be extended by Congress, but only for a short period.
"Consumers will feel that the news is getting better, but not good," said Joel Naroff, president of Naroff Economic Advisors, of Holland, Pa. Americans "are not going to see businesses out there hiring a whole lot of people, and the unemployment rate is likely to continue to rise."
A second report yesterday showed how fragile the labor market is: The number of Americans filing new claims for unemployment benefits fell by just 1,000 in the latest week, 9,000 fewer than economist expected.
If shoppers retrench in the face of the rising joblessness and tight credit, the fragile recovery could tip back into recession, economists caution.
Federal policymakers will now have to focus on how to sustain the recovery and generate jobs. The record $1.4 trillion budget deficit for fiscal 2009 means President Obama has little room for maneuver as he tries to keep unemployment from rising above 10 percent, while the Federal Reserve slows emergency programs in a bid to prevent a surge in inflation.
Millions of Americans have yet to feel a real-world benefit from the recovery in the form of finding a job or a loan. Even those with jobs are reluctant to spend. The values of their homes and 401(k)s remain shrunken.
Obama called yesterday's GDP report "welcome news" in remarks prepared for a small-business group, but he acknowledged that "we have a long way to go to fully restore our economy" and recover from the deepest business slump since the 1930s-era Great Depression.
Treasury Secretary Timothy Geithner also was cautious about the GDP report.
"For every person out of work, every family facing foreclosure, for every small business facing a credit crunch, the recession remains alive and acute," Geithner said.
The third-quarter GDP rise came largely from "durable goods" spending - mostly autos, helped by the federal rebates - that was up 22.3 percent from the second quarter, and from home purchases - boosted by the tax credit - that increased 23.4 percent.
A 21.4 percent increase in exports of U.S. products also helped. That was spurred by the falling value of the dollar, which makes U.S. goods cheaper for foreigners, and by improving world economies.
Many economists predict economic activity will not grow as much in coming months as the bracing impact of the government's $787 billion package of increased government spending and tax cuts fades.
The National Association for Business Economics says growth will slow to 2.4 percent in the current quarter.
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