>UNITED STATES: Rising from its ashes

�� Now, it’s unquestionable: the US economy did not double-dipped, since GDP actually accelerated in the third quarter, posting the highest rate of growth for 2011. After sluggish growth over the first half of the year (+0.4% in Q1 and +1.3% in Q2, on a quarterly annualised basis), GDP grew by 2.5% in Q3.


�� The public sector kept on weighing down on overall demand, with government spending flat over the quarter. Government demand has been cutting overall GDP growth for a full year, now. Since it peaked, in 2010 Q3, public spending lost 2.4%, subtracting 0.6 point to overall GDP growth. This is to continue: while the budget consolidation process is still ongoing at the state and local levels of government, it will start as next year for the federal government. Additionally, the impact is way larger than the direct one on GDP figures.. Since the summer of 2008, government (federal, state and local) payrolls have been cut by 1 114 000 employees: this represents 22% of the total decline in the US employment over the period. The government directly contributed to the decline in households’ labour income, even it was partly offset with a rise in benefits.


�� With real disposable income constrained by a depressed labour market and rising commodity prices, in a context of deleveraging, households’ demand cannot be buoyant. It however held up quite well in Q3, with a 2.4% increase in consumption and even a small increase in residential investment (+2.4%).


�� The main source of strength was thus in business spending and exports. Non-residential investment grew by an annualised 16.3%, spending on equipment and software being a particularly bright sport, at +17.4%. As for exports, they gained an annualised 4.0% in Q3, highlighting the continuous improvement of the US external competitiveness, achieved through a massive drop in unit labour costs, and helped by a declining dollar.


�� The strengths within today’s report are unquestionable. Even if, together, the business and the external sectors represent only a small part of overall demand, they can feed a self-sustained recovery. For this to happen, the US economy “just” needs the households sector to hold up a little longer. Federal money would help…


To read the full report: US ECONOMY