IBJNews

Economy growing at slowest pace since recession

Back to TopCommentsE-mailPrintBookmark and Share

The economy expanded at meager 1.3-percent annual rate in the spring after scarcely growing at all in the first three months of the year, the Commerce Department said Friday.

The combined growth for the first six months of the year was the weakest since the recession ended two years ago. The government revised the January-March figures to show just 0.4-percent growth — down sharply from its previous estimate of 1.9 percent.

High gas prices and scant income gains have forced Americans to pull back sharply on spending in the spring. Consumer spending only increased 0.1 percent this spring, the smallest gain in two years. Government spending fell for the third straight quarter.

Stocks dropped in morning trading. The Dow Jones industrial average fell 100 points, and broader indexes also declined.

"These numbers are extremely bad," said Nigel Gault, an economist at IHS Global Insight. "The momentum in the economy is clearly very weak."

The sharp slowdown means the economy will likely grow this year at a weaker pace than last year. Economists don't expect growth to pick up enough in the second half of the year to lower the unemployment rate, which rose to 9.2 percent last month.

The weaker data will also add pressure to already-tense negotiations between President Barack Obama and lawmakers over increasing the debt limit. Any deal will likely include deep cuts in government spending. That could slow growth further in the short term.

But if Congress fails to raise the debt limit and the government defaults, financial markets could fall and interest rates could rise.

"It is hard to see the economy getting much stronger," Paul Dales, an economist at Capital Economics, said in a research note. "In fact, if the debt ceiling is not raised ... we could well have another recession on our hands."

Earlier this year, economists thought that a Social Security payroll tax cut would accelerate growth in 2011. But most of that money has gone to pay for higher gas prices.

Consumer spending on long-lasting manufactured goods, such as cars and appliances, fell 4.4 percent. Many auto dealers reported shortages of popular models after Japan's March 11 earthquake, cutting into auto sales.

Employers have pulled back on hiring after seeing less spending by consumers. The economy added just 18,000 net jobs in June, the fewest in nine months and a steep drop from the average of 215,000 jobs per month added from February through April.

Those who have jobs are seeing little gain in their incomes. After-tax incomes, adjusted for inflation, rose only 0.7 percent, matching the previous quarter and the weakest since the recession ended.

The drop in government spending was driven by cuts at the state and local level. Those governments have slashed spending in seven of the eight quarters since the official end of the recession.

Business investment, which has been a driver of growth during the recovery, also faltered this spring. Spending on equipment and software grew 5.7 percent in the second quarter, down from the first quarter's 8.7 percent pace and below the double-digit gains posted last year.

The government also revised data going back to 2003. The data show the recession was even worse than previously thought. The economy shrank 5.1 percent during the recession, which lasted from December 2007 through June 2009, compared to the earlier estimate of 4.1 percent. Both figures represent the worst downturn since World War II.

"The depth of the recession is now clearly so much deeper," Gault said.

Friday's report is the first of three estimates the government releases of the gross domestic product, which measures everything from restaurant meals to auto production to government spending.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. I never thought I'd see the day when a Republican Mayor would lead the charge in attempting to raise every tax we have to pay. Now it's income taxes and property taxes that Ballard wants to increase. And to pay for a pre-K program? Many studies have shown that pre-K offer no long-term educational benefits whatsoever. And Ballard is pitching it as a way of fighting crime? Who is he kidding? It's about government provided day care. It's a shame that we elected a Republican who has turned out to be a huge big spending, big taxing, big borrowing liberal Democrat.

  2. Why do we blame the unions? They did not create the 11 different school districts that are the root of the problem.

  3. I was just watching an AOW race from cleveland in 1997...in addition to the 65K for the race, there were more people in boats watching that race from the lake than were IndyCar fans watching the 2014 IndyCar season finale in the Fontana grandstands. Just sayin...That's some resurgence modern IndyCar has going. Almost profitable, nobody in the grandstands and TV ratings dropping 61% at some tracks in the series. Business model..."CRAZY" as said by a NASCAR track general manager. Yup, this thing is purring like a cat! Sponsors...send them your cash, pronto!!! LOL, not a chance.

  4. I'm sure Indiana is paradise for the wealthy and affluent, but what about the rest of us? Over the last 40 years, conservatives and the business elite have run this country (and state)into the ground. The pendulum will swing back as more moderate voters get tired of Reaganomics and regressive social policies. Add to that the wave of minority voters coming up in the next 10 to 15 years and things will get better. unfortunately we have to suffer through 10 more years of gerrymandered districts and dispropionate representation.

  5. Funny thing....rich people telling poor people how bad the other rich people are wanting to cut benefits/school etc and that they should vote for those rich people that just did it. Just saying..............

ADVERTISEMENT