Recent data clearly shows that US economy is on a recovery path from its deep recession. However growth is expected to be moderate with the job market not reviving immediately.

According to revised estimates by the Bureau of Economic Analysis, real GDP contracted by 0.7% in annualised terms in the second quarter of 2009 as against first quarter fall of 6.4%. The contraction in the second quarter was mainly due to negative contributions from inventory investment, private fixed investment and private consumption. Reduced government expenditure and decreasing imports contributed positively to growth in the second quarter. Initial reports for the third quarter also look positive. The quarter registered growth though at a trivial rate. According to the median estimate of economists the world’s largest economy probably expanded at a 3.2 percent annual pace from July through September after shrinking in each of the previous four quarters. However the pace of growth may moderate in the fourth quarter as government programs such as “cash-for-clunkers” and first-time homebuyer tax credits expire.

Regarding inflation, the US consumer price index declined by 1.5% in the year to August 2009. This followed a decrease of 2.1% in the year to July. The negative inflation continues to be driven mainly  by the decline in energy prices compared to the previous year. The annual rate of inflation, excluding food and energy, reached 1.4% in August, down from 1.5% in July. However increasing energy prices are expected to reverse this trend and inflation rates are likely to return to positive territory.

Looking ahead, the outlook for GDP growth has been improving recently. While financing conditions remain tight and labour markets weak, recent data point to improvements in the housing market and the manufacturing sector. Moreover, government stimulus measures continue to provide substantial support to the economy. The $787 billion stimulus package and inventory rebuilding by businesses were among the dominant drivers lifting the economy. However considerable slack still remains in the economy and job growth would lag behind the broader economic recovery.

Many economists think that the recession which began in December 2007 is drawing to an end. But there is much disagreement about the path of recovery. Some foresee above-average growth continuing through next year, arguing that deep recessions are typically followed by powerful recoveries, helped along by pent-up demand as consumers and companies resume spending. Others worry that heavily indebted households will remain cautious in their spending, particularly with unemployment near 10 percent and likely to move higher, restraining a recovery.

There are other concerns that still continue to plague the economy. The biggest concern is the $1.4 trillion budget deficit, which is equivalent to 10 percent of the economy. The deficit is expected to remain high in the coming years. Also the jobless rate at its all time high of 9.8% with economist predicting that it will take long time for the jobless rate to decline even if growth kicks in. As per recent data the number of Americans filing first-time claims for unemployment insurance rose by 11,000 to 531,000. This serves as a reminder that the labour market will be slow to recover.