July 22 (Bloomberg) -- Sure, the U.S. economy has lots of problems, including falling payroll employment, the highest inflation in 17 years, declining home prices and a shaky financial industry.

Consumer confidence has dropped into the basement, partly because of the cost of gasoline, which has gotten so high it's killing sport-utility-vehicle sales. Maybe without the tax-rebate checks, consumers wouldn't have been spending on other stuff. Nevertheless they have.

The dollar is in the tank, too, adding to inflation, even for goods coming from China.

And for all that, the U.S. economy expanded in the second quarter, and not at too shabby a rate considering the many drags on growth.

Even with all the things going wrong -- including the official bear market on Wall Street -- growth probably checked in at about a 2.5 percent annual rate in the second quarter. That's about as fast as many economists think it could grow on a sustained basis without generating more inflation.

Some of the gain can be traced to exports, which are soaring at the same time that imports are slowing. That makes a big difference in U.S. economic growth.

``The second quarter appears to be actually better than expected,'' Federal Reserve Chairman Ben S. Bernanke said at a congressional hearing on July 15. ``We're looking at the remainder of the year as being probably positive growth but certainly not robust growth.''

No Recession

In spite of the hand-wringers, the U.S. economy isn't mired in a recession -- and that's not just a technical matter of definitions. It's a matter of how many jobs are likely to be lost as the country works its way out of the mess created by the bursting of the housing bubble, the resulting financial-market turmoil and soaring energy prices.

At a July 16 hearing, Massachusetts Democratic Representative Barney Frank, chairman of the House Financial Services Committee, said ``if the numbers on employment in the second half are no better than those for the first half, we are on track to lose nearly 1 million jobs this year.''

That's true, though with about 138 million payroll jobs, that would be a loss of three-quarters of 1 percent. Losses in recessions normally are much higher than that. Early in 2002, after the last recession had ended, the 12-month job loss was more than 2 million, according to the Bureau of Labor Statistics.

The unemployment rate, which was 5.5 percent in both May and June, is about a percentage point higher than it was in the first half of 2007, and it is likely to increase unless economic growth becomes stronger than now expected.

Productivity Gains

Falling payrolls are usually a symptom of slowing economic growth. Hefty productivity gains are making a difference this time, a contrast with past slowdowns in which productivity normally fell.

When the financial-market turmoil intensified last August and housing turned down with a vengeance, growth seemed to hit a wall. Gross domestic product, which had increased at a 4.9 percent rate in the third quarter, all but came to a standstill in the fourth, registering a 0.6 percent gain. The first quarter was a bit better at 1 percent.

As demand slowed, businesses quickly cut the number of hours their employees worked. That kept inventories from building and helped maintain profits. The payroll reductions were possible only because workers still on the job produced more.

In the fourth quarter, non-farm business increased its output at a 0.2 percent rate while the number of hours their employees worked fell at a 1.6 percent rate. The bottom line: Productivity increased at a 1.8 percent pace.

Increased Production

The first-quarter numbers were even better -- output was up 0.7 percent, hours down 1.8 percent and productivity increased 2.6 percent.

Productivity gains in manufacturing, and the drop in hours worked, were much stronger than in other industries, as Bernanke noted in one of the hearings.

Even when factory output is increasing -- over the past 12 months manufacturing production fell 0.6 percent -- there has been a loss of jobs, Bernanke said, ``because the U.S. manufacturing sector is enormously productive and its productivity has been growing more quickly that the rest of the economy.''

In the 2001 recession, which was caused by a large retrenchment in business investment, there were several months in which factory output fell 0.6 percent or more.

Sometimes it seems we have lost our sense of perspective about the state of the economy. Growth certainly isn't good and there's no guarantee it won't get worse. Families losing their homes to a foreclosure are undoubtedly feeling intense pain.

As I said in a recent column, the bulk of the cutback that had to occur in housing construction is behind us. And some analysts have begun to suggest that the worst for the large financial institutions, such as Citigroup Inc. and Bank of America Corp., may be over as well.

Let's take a deep breath and give thanks for the incredible resilience of the U.S. economy.

(John M. Berry is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: John M. Berry in Washington at jberry5@bloomberg.net

Last Updated: July 22, 2008 03:30 EDT