Stimulus Fueled Much of Expansion

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 clearest 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. The US economy would have turned in a far worse performance in the third quarter without help from the federal government. More than one percentage point of GDP growth in the third quarter came from car sales, driven in a large part by the temporary "cash for clunkers" program. After surging in July and August, retail car sales dropped 10.4% in September, suggesting the auto sector won't provide such a big boost again any time soon. Spending in the third quarter was also propped up by home building, which rose for the first time since 2005, by a whopping 23.4%, and contributed a half-percentage point to GDP growth. But much of the housing revival reflects government efforts to push down mortgage rates, prevent or at least slow foreclosures, and reward home buyers with tax credits. Goldman Sachs estimates that those efforts have pulled the national average home price 5% higher than it otherwise would be. 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. Progress on those fronts is mixed. The good news is that the deck is now cleared for a recovery.