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Unexpected growth for US economy
Struggling economy registers unexpected growth, but high unemployment remains an obstacle for further growth.
Last Modified: 23 Nov 2010 18:04 GMT
The US economy needs to grow twice as fast in order to decrease the current unemployment rate of 9.6 per cent [EPA]

The US economy has grown by 2.5 per cent in the third quarter, the country's commerce department has said.

The growth rate announced on Tuesday was much faster than first thought, with the department previously reporting that the gross domestic product (GDP) rose by 2.0 per cent in the period from July to September.

The increase was attributed to higher consumer spending, firms rebuilding inventory, stronger exports and more government outlays. Weaker imports also helped increase the figures.

The increase in growth comes after the economy slowed earlier in the year, advancing at a rate of just 1.7 per cent.

However, the economy would need to grow at least twice as fast as it did in the third quarter to decrease the current 9.6 per cent unemployment rate - which is why the government introduced a second stimulus package.

The packed is aimed at enticing the public to spend more by making loans cheaper and by boosting stock prices.

But very few politicians in Washington - including Ben Bernanke- the chairman of the Federal Reserve think the programme will create the robust growth needed to ratchet down the unemployment rate.

In the third quarter, consumers boosted their spending at a pace of 2.8 per cent, the most in nearly four years.

That was a stronger showing than the 2.6 per cent pace first estimated. Even with the improvement, consumers would need to spend more to have a significant impact on the jobs market.

This is attributed to the fact that consumer spending accounts for roughly 70 per cent of all national economic activity.

Weak outlook

Meanwhile, sales of US exports to foreign customers grew by 6.3 per cent in the third quarter, another factor in the third-quarter increase. That is compared with a five per cent growth first estimated.

A weaker value of the US dollar is helping those sales. The falling dollar makes US goods cheaper - and thus more attractive - to foreign buyers.

According to analysts, the economy would need to grow by five per cent for a full year to push down the unemployment rate by a full percentage point.

But for all of this year, the economy is expected to expand by 2.6 per cent. Faced with such a weak outlook, Bernanke does not think the central bank should not attempt to invigorate the economy,

However, China, Brazil, Germany and other countries have expressed concern by the US government's bond-purchase plan.

They have complained that is intended to further drive down the value of the US dollar, giving U.S. exporters a competitive advantage over their foreign rivals.

Republican economists and politicians have also criticised the move, saying it could lead to uncontrollable inflation.

Bernanke has repeatedly rejected such criticism.

Source:
Agencies
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