Analysts were all abuzz over US third quarter growth that was better than expected.  But, can this pace of growth be sustained in the short term?  And, more importantly, what does it mean for the US dollar?

It’s an impressive number – given recent pessimistic growth forecasts that we’ve all been hearing about.  For the third quarter, US economic growth expanded at a 2.5% pace.  This is far better than the horrid 1.3% in the second quarter and relatively on the line with other industrialized economies.  Canadian economic growth is now expected to be in the 1.5-2% area – along with the European Union.

But, anyone in the labor market these days will tell you that the euphoria surrounding that figure may not last long.  Employment in the US economy continues to remain in the dumps.  Jobless claims on a weekly basis continue to remain above 400,000.  Not a very good sign when previous year’s weekly figures hovered around 200,000 – when the unemployment rate was below the current 9.1%.  The concerns have kept consumer spending on the low side, negatively affecting retail sales figures.

And, these figures get worse.

Taking a look at the recent Commerce Department report, it seems that consumers are now tapping their savings accounts in order to furnish their standard of living.  In the third quarter, the US savings rate dipped to just above 4%, the lowest since the beginning of the US financial crisis back in the beginning of 2008.   Since that time, US consumers opted to save their income – as well as pay down their debt – maintaining an average of about 5.2% over the last three years.  Current conditions, if sustained, will likely lead to further cuts in household consumption in the next couple of quarters – as the savings rate continues lower.  Bad for an economy that relies on consumption for future growth.

But, companies fared better. Corporations looking for better pricing and upgrades increased their company investments to the tune of 17.4%.  This is the highest pace in the last 12 months.  But, as usual, activity like this is expected to be temporary and won’t likely be repeated till the beginning of next year – if at all.  So, given the enormous contribution that business spending did for the quarterly figure, anticipation remains high that the revision may be lower for the quarter and subsequent quarters going forward.

All in all, this spells nothing but further recessionary conditions for the US economy.

The scenario could translate in to higher valuations for the major currencies against the greenback in the long term as global investors shun dollar based assets for investments in Asia and Europe.  In particular, the Australian dollar is set to be a big gainer, along with the European euro.  Although the latter continues to remain under heavy speculation due to its recent resolution regarding the region’s financial crisis.

So, given all the hoopla over today’s quarterly growth figure, the good times may only be temporary and shortlived.  Once the current economic reality sets in, US dollar bulls may ultimately want to seek shelter in something other than the greenback.