CHAMPAIGN, Ill. – The recession may be over, but recovery will come slowly for a still-fragile U.S. economy battered by the deepest downturn since the Great Depression, a University of Illinois economist says.
The Commerce Department reported Thursday that the economy grew 3.5 percent in the third quarter, ending a streak of four straight losing quarters and marking the first increase since a short-lived up tick in the spring of 2008.
“This is good news, with a caveat,” said U. of I. economist Anne Villamil. “The numbers reflect the effects of a massive stimulus plan that is temporary, boosting the economy through increased government spending, ‘Cash for Clunkers’ and first-time home buyer credits, among other programs.”
Third-quarter growth was the strongest since just before the country tumbled into a deep recession in December 2007, and was slightly higher than the 3.3 percent growth rate that economists expected.
Yet to be answered, Villamil says, is how long it will take to restore employment to normal levels and put the economy back on solid ground. She says the job market took several quarters to rebound after the last two recessions, in 1991 and 2001.
“One quarter of growth is a positive development, but we need sustained and robust growth to create the jobs that will lift the U.S. economy out of the ‘Great Recession,'” she said.
Despite growth in the third-quarter, government officials warn that unemployment could continue to rise into next year. Economists say the jobless rate – now at a 26-year high of 9.8 percent – could go as high as 10.5 percent about the middle of 2010 before declining gradually.
Villamil agrees.
“We are seeing a typical pattern at the end of a recession,” she said. “The stock market moves first in anticipation of a recovery. Gross domestic product then begins to grow, but unemployment often continues to rise before it eventually falls and returns to a lower level – much later in the cycle.”
“The U.S. economy will need to return to robust and sustained growth in order to create jobs,” Villamil said. “In fact, unemployment may increase slightly in the near term.”
Villamil studies financial contracts and the impact of inflation on public finance. She is a co-editor of the Annals of Finance and an associate editor of Economic Theory, the European Economic Review, and the Quarterly Review of Economics and Finance.
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