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Economy growing at slowest pace since recession

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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.

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  1. The east side does have potential...and I have always thought Washington Scare should become an outlet mall. Anyone remember how popular Eastgate was? Well, Indy has no outlet malls, we have to go to Edinburgh for the deep discounts and I don't understand why. Jim is right. We need a few good eastsiders interested in actually making some noise and trying to change the commerce, culture and stereotypes of the East side. Irvington is very progressive and making great strides, why can't the far east side ride on their coat tails to make some changes?

  2. Boston.com has an article from 2010 where they talk about how Interactions moved to Massachusetts in the year prior. http://www.boston.com/business/technology/innoeco/2010/07/interactions_banks_63_million.html The article includes a link back to that Inside Indiana Business press release I linked to earlier, snarkily noting, "Guess this 2006 plan to create 200-plus new jobs in Indiana didn't exactly work out."

  3. I live on the east side and I have read all your comments. a local paper just did an article on Washington square mall with just as many comments and concerns. I am not sure if they are still around, but there was an east side coalition with good intentions to do good things on the east side. And there is a facebook post that called my eastside indy with many old members of the eastside who voice concerns about the east side of the city. We need to come together and not just complain and moan, but come up with actual concrete solutions, because what Dal said is very very true- the eastside could be a goldmine in the right hands. But if anyone is going damn, and change things, it is us eastside residents

  4. Please go back re-read your economics text book and the fine print on the February 2014 CBO report. A minimum wage increase has never resulted in a net job loss...

  5. The GOP at the Statehouse is more interested in PR to keep their majority, than using it to get anything good actually done. The State continues its downward spiral.

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