US economic recovery remains sluggish

(From the ft.com) The US economy grew at an annual rate of just 2 per cent in the third quarter, cementing the case for a new round of monetary easing by the Federal Reserve when it meets next week. In what will be a pivotal week for the US economy, the central bank is now poised to commit to a new program of quantitative easing – so-called QE2 – on Wednesday, the day after midterm elections to Congress.

Market reaction to the elections and to QE2, which may involve the Fed buying $500bn of Treasury bonds in an effort to lower long-term interest rates, will play a key role in determining whether the recovery picks up pace or continues to stutter.

Growth accelerated from the 1.7 per cent reported for the second quarter, according to the Bureau of Economic Analysis on Friday, but it was still too weak to put a dent in America’s 9.6 per cent unemployment rate.

“We are doing better but we are not doing well,” said Neal Soss, chief economist of Credit Suisse in New York, who said the report demonstrated why the Fed was considering a further stimulus.

The brightest spot was a 2.6 per cent annualized rise in consumption, the fastest rate of growth since 2006, but one that will be hard to sustain unless employment and wages rise so that consumers have more money in their pockets.

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