GDP Up: Will Recession Fear Fade as Economy Shows Signs of Life?
Meg Handley

Recovery appears to find its footing even as Democrats and GOP scramble to find fixes

With just two months until the first primary contests officially kick off the race for the White House, politicians have unleashed a flurry of proposals designed to fix the ailing economy, encompassing everything from tax-code reform to student loan relief to a large-scale mortgage refinancing initiative.

And it sure seems like we need it, right? A string of bad economic data and policy failures in the first half of 2011 have severely weakened consumer and business confidence -- more than three in four Americans now believe the country is on the "wrong track" according to a recent Rasmussen Reports poll. That attitude has made virtually everyone clam up and become super-cautious when it comes to spending, a persistent obstacle in this non-recovery.

Not only do Americans feel uncertainty about the U.S. economy in general, plenty of doubts exist when it comes to their own financial situations as well. Even with a weak "recovery" taking place, personal income growth has receded to levels not seen since 2010, making Americans feel less wealthy and increasingly pessimistic about the future.

But while no one is arguing the economy is in tip-top shape, a slew of recent data shows encouraging progress and support for the argument that although weak growth might be in the future, a double-dip recession most likely isn't. Here are a few reasons why things might be looking up for the U.S. economy:

[Read: Recession Fears Fade But Euro Debt Crisis Still Looms.]

Gross domestic product.

After a series of gloomy forecasts for the U.S. economy, real gross domestic product -- a measure of the output of goods and services -- increased at an annual rate of 2.5 percent in the third quarter of 2011 according to the advance estimate released by the Bureau of Economic Analysis Thursday. In the second quarter, real GDP increased 1.3 percent and first-quarter numbers came in at a measly 0.4 percent. While economists emphasize that 2.5 percent isn't exactly robust growth, it is a huge improvement from first- and second-quarter estimates and a sign that the much-anticipated economic recovery could be finally finding its footing. But, other economists warn that growth above 2 percent doesn't appear to be sustainable. "Business investment, inventory, and exporting hold the key to how much growth can be anticipated through the first half of 2012," Kathy Bostjancic, director for macroeconomic analysis at the Conference Board, said in a press release Thursday.

In any case, simply the perception that things are getting slightly better could generate a rebound in consumer and business confidence, which could ultimately help steer the economy further away from the cusp of another recession.

Housing.

Pretty much any way you slice it, the housing market is in the dumps. And while 2011 is shaping up to be one of the worst years on record for the single-family housing market, green shoots might be growing elsewhere. It seems counterintuitive given the constant talk of overbuilding contributing to the massive housing bubble, but a rebound in multifamily unit construction -- think townhomes or apartments -- has given the housing market a shred of hope to cling to.

Thanks to building activity in that sector, housing starts jumped 15 percent -- the best reading in 17 months, according to IHS Global insight -- to a 658,000 annual rate. Single-family starts were up 1.7 percent, according to IHS, a modest but encouraging change.

According to IHS forecasts, a housing market recovery initially driven by an uptick in multi-family unit construction through 2013 will eventually make way for improvement in the decimated single-family home space as pent-up demand builds.

In some ways, that demand may be reappearing already.

On the heels of strong gains in August, existing home sales -- while down 3 percent in September -- clocked in at more than 11 percent above figures from September 2010, according to the National Association of Realtors.

"Existing-home sales have bounced around this year," NAR chief economist Lawrence Yun said in a press release. "Even so, the volume of successful buyers is higher than a year ago and is remaining fairly stable -- this speaks to an unfulfilled demand."

[Read: Falling Housing Market Inventory Brings Only Limited Benefits.]

Businesses.

Although somewhat masked by volatility in the aircraft sector, demand for big-ticket items soared in September, with gains reported in computers, metals, machinery, and electrical equipment. Business capital spending jumped sharply, according to an analysis by Naroff Economic Advisors, indicating that businesses are investing "at a robust pace that bodes well for not just current but future growth."

Consumers.

Consumer confidence levels may be in recessionary territory, but that doesn't seem to be translating to spending, at least not to the extent the rock-bottom readings would indicate. Americans have been battered by worry on virtually all sides -- from high unemployment, to wealth loss, to high debt burdens, to the likelihood of future tax increases -- and yet, last month retail sales rocketed 7.9 percent above September 2010, largely driven by auto sales.

Although economists don't expect consumer spending to be a major driver of economic recovery, relief in the form of stable or even sinking gasoline prices could also take some pressure off Americans' budgets, allowing them to divert funds that would have been spent on fuel to other discretionary items. That could also boost confidence if consumers feel they have more padding in their wallets.

Unemployment.

Ask anyone what the most pressing problem for the economy is, and more often than not you'll hear "jobs." The number of unemployed or underemployed has ballooned to 26 million Americans over the past several months, and the ranks continue to grow.

But while there's no denying the employment situation is grim, the economy is adding jobs. Accounting for the return of striking Verizon workers, 58,000 jobs were created in September, after August returned a shocking zero net jobs created. Coupled with initial unemployment insurance claims tapering off, that means the unemployment rate might drop soon.