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Economy grows 2%: Consumer, government spending up

(MoneyWatch) There's no getting around a simple fact: The U.S. is mired in a slow growth recovery. The Commerce Department said third quarter GDP increased by 2 percent, boosted by a rise in consumer and government spending.

Consumer spending, which accounts for about 70 percent of U.S. economic activity, grew at a 2 percent rate. And after eight straight quarters of declines, government spending finally contributed to economic growth. Federal government spending jumped 9.6 percent, versus a 0.2 percent drop in the second quarter. State and local government spending was down slightly.

The result was on the higher side of analysts' expectations, but that's cold comfort for anyone who is hoping for trend-line historic growth any time soon. Through the first three quarters of the year, the economy has expanded by 1.75 percent, matching 2011's growth, though well below the average annualized GDP since World War II of 3 to 3.5 percent.

After living through a deep and painful recession, we should probably appreciate the plus sign in front of the GDP. (Who can forget the 8.9 percent contraction in the fourth quarter of 2008?) But it's hard to see how the economy is going to put more than 12 million unemployed Americans back to work with just 2 percent growth. Regardless of who ends up in the White House, lackluster growth may be with us for the next few years.

Economists Carmen M. Reinhart and Kenneth S. Rogoff, authors of "This Time Is Different: Eight Centuries of Financial Folly," recently reiterated "that recessions associated with systemic banking crises tend to be deep and protracted and that this pattern is evident across both history and countries... Today, there can be little doubt that the U.S. has experienced a systemic crisis -- in fact, its first since the Great Depression. Before that, notable systemic post-Civil War financial crises occurred in 1873, 1893 and 1907."

Because the U.S. has experienced the "bad" kind of recession, it was never in the cards to see a classic "V-shaped recovery," where the economy returns to its old self within a year or two. So how much longer will it take? It will likely take 7 - 10 years to return to the pre-crisis peak in Q4 2007. The U.S. economy is five years into the mission, with another 2 - 5 years to go. That's a tough message, but a realistic one.

Editor's note: CBS MoneyWatch initially published an Associated Press story on the GDP report, which we have since replaced with this staff-written article. You can find the initial AP report and reader comments here.