More 'green shoots' for U.S. economy

New economic data released Thursday lent more credence to the theory that the U.S. economy is emerging from its worst slump in at least 60 years.

The U.S. Commerce Department said gross domestic product shrank at an annual rate of one per cent in the second quarter that ended in June. That's better than the 1.5 per cent slump expected by analysts.

'The pace of decline has eased sharply...' —RBC economist Paul Ferley

It was the fourth straight quarter of negative GDP growth in the U.S. But economists noted that the Q2 figures were a big improvement from the dismal situation of the previous two quarters.

GDP shrank by an annualized 6.4 per cent in the first three months of 2009 after declining 5.4 per cent in the final quarter of last year.

Speculation that the longest U.S. recession since the Second World War might be drawing to a close was bolstered by new data from the U.S. Commerce Department that showed initial jobless -benefit claims falling by 10,000 to a seasonally adjusted 570,000.

Continuing claims dropped by 120,000 to 6.13 million — the lowest in more than four months.

While those numbers are still well above the numbers expected in a healthy economy, they had more economists and policy-makers declaring that the rebound is underway.

Corporate profits jump

Corporate profits rose 5.7 per cent from the first quarter — the biggest increase in more than four years — and consumer spending was down by a stronger-than-expected one per cent.

"Although today's report continues to show an economy declining in the second quarter, the composition was more favourable, with a greater drawdown in inventories being offset by less weakness in consumer spending," RBC economist Paul Ferley said in a morning commentary.

"Thus, the report will likely not alter the emerging view that the economy returned to positive growth in the third quarter."

Analysts point to the "cash for clunkers" program, which helped spur 700,000 vehicle sales in the past month, and the first payouts from the $787-billion-US economic stimulus program for helping to stem the economy's steep decline.

The only question now is how sustainable the recovery will be. A recent survey of U.S. economists found that a significant minority believes the current recovery amounts to little more than a head fake and will soon change direction and become a double-dip recession.

Last week, Federal Reserve chairman Ben Bernanke painted a more optimistic picture — saying economic activity "appears to be levelling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good."

Bank of Canada governor Mark Carney is forecasting that the rcession in Canada is all but over as economic growth returns in the current quarter.

But economists and central bankers in both the U.S. and Canada warn that unemployment is likely to worsen in the months to come.