The recession may be over, but consumers are in no shape to drive the recovery.
Fresh figures due out Thursday are widely expected to show that the U.S. economy grew in the third quarter for the first time in more than a year - long-awaited confirmation that the recession is over and recovery has begun.
The consensus among economic forecasters is that gross domestic product expanded at an annual rate of at least 3 per cent in the July to September period, and many say the number could top 4 per cent.
The GDP number marks the "first, semi-official recognition" that the recession is over, said Paul Dales, U.S. economist at Capital Economics Ltd.
This first evidence since early 2008 that the economy is growing again may seem like cause for celebration.
But temper the enthusiasm: The main driver of the economy - U.S. consumers - are still in a deep funk, relying heavily on temporary government incentives to get them to spend.
"It's certainly a good milestone," added Bill Cheney, chief economist at MFC Global Investment Management in Boston. "The end of a recession is as bad as it gets, but given how far down we went, happy days are still a long way off."
The key, according to Mr. Cheney, is to see whether the temporary jump-start of near-zero interest rates, stimulus spending and an apparent turnaround in housing is enough to spur a growth in jobs. And that hasn't yet happened.
Economists warn that the next few quarters are fraught with uncertainty because the impact of government spending is already fading, including the wildly popular cash-for-clunkers car purchase scheme and a big tax credit for first-time home buyers.
Much of the expected growth is also a natural bounce from the severe shock of the recession as manufacturers replenish depleted inventories of everything from cars to canned tomatoes. The harder the fall, the higher the percentage growth.
"Economists are the only people saying the recession is over," cautioned Mark Vitner, senior economist at Wells Fargo Securities in Charlotte, N.C. "Consumers haven't seen it yet."
The latest U.S. Conference Board survey of consumers, whose spending makes up 70 per cent of the economy, shows that Americans remain quite glum about their incomes and job prospects, making them less likely to buy homes, cars and other major items. "Without jobs or an improvement in incomes, consumers aren't going to step up and make major purchases," pointed out Mr. Vitner, who expects the economy to grow 3.7 per cent in the third quarter.
Consumer confidence unexpectedly fell in October to 47.7 from 53.4 in September, according to the Conference Board.
But most sobering in the report is that Americans are pessimistic about their job prospects and say they're less likely to buy homes and cars in the months ahead. The number of consumers who say they intend to buy a car has fallen back to the all-time lows of last November.
The official arbiter of U.S. economic cycles, the National Bureau of Economic Research (NBER), typically doesn't declare the end of a recession until a year or more after the fact. And the bureau relies on more than just quarterly GDP figures, incorporating data on income, retail sales, manufacturing activity and employment to reach its determination.
NBER says the recession began in December, 2007. Many economists believe the downturn probably ended in June or July of this year - making it the longest economic slump since the Great Depression.
The third quarter is expected to be a watershed. Activity in the housing sector, which was the trigger for the recession, is expected to be higher for the first time in four years.
"Housing is no longer a drag on the economy," Mr. Dales said.
Though home prices fell 11.3 per cent in August compared with the same month last year, according to Case-Shiller home price index, prices grew on a monthly basis for the third straight month.
Mr. Dales expects GDP to grow at 4 per cent in the third quarter, and by similar rates through the middle of next year, spurred by consumers and business investment.