MercoPress. South Atlantic News Agency

US economy picks up but Governors give different picture

The US economy has been boosted by the government's 168 billion 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". But 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. "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 organizations such as the International Monetary Fund have argued that the economy will continue to slow further until 2010. 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. 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. Secretary Paulson optimistic forecast comes on the day California governor Arnold Schwarzenegger announced measures to end a budget crisis which included sacking 22,000 state workers and ordering pay cuts for 200,000. The most populous state in the US faces a budget deficit of more than 15 billion US dollars and legislators are struggling to agree a spending plan. California has one of the largest economies in the world and it has no way to pay contractors for many of the services it provides. Some 30 American states face budget deficits caused by rising costs and falling revenues in a slumping economy but California's is by far the largest. New York governor David Paterson earlier this week admitted the state economy was in recession and announced spending cuts to face a steep budget deficit due to declining tax revenues.