Page last updated at 23:39 GMT, Thursday, 31 July 2008 00:39 UK

US economic growth stays positive

A US shopper
Tax rebates have encouraged consumers to spend more

The US economy has been boosted by the government's $168bn (84bn) stimulus package, according to the US Treasury Secretary Henry Paulson.

Official figures showed that gross domestic product (GDP) rose at an annual rate of 1.9% between April and June, up from 0.9%.

Mr Paulson predicted that the US economy would get stronger next year "and beyond".

The figure was worse than expected and caused shares to fall.

The benchmark Dow Jones index closed more than 200 points, or 1.78% lower at 11,378.02 points.

Investors were also concerned that the government had downgraded its estimate of growth in the last three months of 2007 from the previous reading of 0.6% to show a negative growth figure of -0.2%.

The US dollar fell across the board, including against the euro and the yen, following the release of the data.

At the current growth rate of nearly 2%, the US economy is only growing at half the rate it was one year ago.

'Timely' stimulus

We're in a recession. I don't know how they get the 1.9% [figure] in the second quarter
Robert Macintosh, chief economist, Eaton Vance Management

"Clearly the stimulus plan has supported the US economy during this difficult period and couldn't have been timelier," said US Treasury Secretary Henry Paulson.

Without that extra government spending, which added almost 4% to the economy that quarter, it is feared that growth would have been negative.

Analysts are now concerned about what will happen to the US when the benefit of the stimulus package, which gave tax rebates to 130 million households, has passed.

The US Treasury Secretary Henry Paulson said he expects the economy to continue growing this year and "to return to stronger growth next year and beyond".

However, other international organisations such as the International Monetary Fund have argued that the economy will continue to slow further until 2010.

Jobless claims rise

Some economists believe that the US is already in a recession and the latest unemployment figures have compounded that belief.

Figures from the Department of Labor showed that the number of applications for unemployment benefit last week hit a five-year high.

Jobless claims reached 448,000, an increase of 44,000 from the previous week.

"I think the most troubling thing out of all the numbers this morning is the (jobless) claims number. If that doesn't convince people we're in a recession, then nothing will," said Robert Macintosh, chief economist at Eaton Vance Management in Boston.

The most common definition of a recession is two consecutive three-month periods of negative growth.

Officially in the US, a recession has not taken place until the National Bureau of Economic Research says this is the case, but this decision may not come for two years.

"We're in a recession," said Mr Macintosh. "I don't know how they get the 1.9% [growth figure] in the second quarter."




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