IBJNews

U.S. economic growth slowed to 1.5 percent in 2nd quarter

Associated Press
July 27, 2012
Back to TopCommentsE-mailPrintBookmark and Share

The U.S. economy grew at an annual rate of just 1.5 percent from April through June, as Americans cut back sharply on spending. The slowdown in growth adds to worries that the economy could be stalling three years after the recession officially ended.

The Commerce Department also said Friday that the economy grew a little better than previously thought in the January-March quarter. It raised its estimate to a 2-percent rate, up from 1.9 percent.

Growth at or below 2 percent isn't enough to lower the unemployment rate, which was 8.2 percent last month. And most economists don't expect growth to pick up much in the second half of the year. Europe's financial crisis and a looming budget crisis in the U.S. are expected to slow business investment further.

"The main take away from today's report, the specifics aside, is that the U.S. economy is barely growing," said Dan Greenhaus, chief economic strategist at BTIG LLC. "Along with a reduction in the actual amount of money companies were able to make, it's no wonder the unemployment rate cannot move lower."

Some economic data improved over the course of the April-June quarter, while others worsened. Hiring, for example, rose slightly from April to May to June. But home sales weakened.

Stocks opened higher as investors appeared to shrug off the weak U.S growth and focus on a pledge from the European Central Bank president to keep the euro together. The Dow Jones industrial average was up about 70 points in late-morning trading, and broader indexes also rose.

The lackluster economy is raising pressure on President Barack Obama in his re-election fight with Mitt Romney, the presumptive Republican presidential nominee.

But few think the Fed, the White House or Congress can or will do anything soon that might rejuvenate the economy quickly. Many lawmakers, for example, refuse to increase federal spending in light of historically large budget deficits.

Paul Dales, senior U.S. economist at Capital Economics, said that the sluggish second-quarter growth rate is probably not weak enough to trigger more action by the Federal Reserve when it meets next week.

Many economists, however, believe the Fed will launch another round of bond buying at its September policy meeting. The aim is to drive long-term interest rates lower and encourage more borrowing and spending.

Glenn Hubbard, economic adviser for Romney, said Friday's report on growth was largely what economists were expecting. "But those expectations themselves and the report itself were actually quite disappointing," he noted.

"At that pattern, the economy simply will never return to full employment," he said.

Alan Krueger, chairman of the White House Council of Economic Advisers, said the report showed the economy grew for the 12th straight quarter.

Congress could strengthen growth and job creation by adopting President Barack Obama's plan to extend expiring tax cuts for all but the wealthiest Americans, Krueger said.

Republicans want the tax cuts extended for all Americans.

The 1.5-percent growth rate in the second quarter was the weakest since the economy, as measured by the gross domestic product, expanded at a 1.3-percent rate in the July-September quarter last year. GDP measures the country's total output of goods and services, from the purchase of a cup of coffee to the sale of fighter jets.

Current-dollar GDP increased at an annual rate of $117.6 billion in the second quarter, to $15.6 trillion.

Growth was weaker mostly because consumer spending slowed to a growth rate of just 1.5 percent. That's down from 2.4 percent in the first quarter. Americans bought fewer autos, computers and other long-lasting manufactured goods. Spending on services increased.

They also saved more. The savings rate increased to 4 percent, up from 3.6 percent in the first quarter.

Consumer spending, which accounts for 70 percent of economic activity, was offset somewhat by a slightly smaller drag from the government. Spending by governments fell at an annual rate of 1.4 percent in the second quarter, just half of the 3-percent rate of decline in the first quarter.

The Commerce Department also revised its growth estimates for the past three years. Those revisions showed that the economy contracted 3.1 percent in 2009, slightly less than the 3.5 percent previously reported. Growth in 2010 was put at 2.4 percent, down from 3 percent, with growth in 2011 at 1.8 percent instead of 1.7 percent.

The U.S. economy has never been so sluggish this long into a recovery. The Great Recession officially ended in June 2009.

Until a few weeks ago, many economists had been predicting that growth would accelerate in the final six months of the year. They pointed to gains in manufacturing, home and auto sales and lower gas prices.

But threats to the U.S. economy have left consumers too anxious to spend freely. Jobs are tight. Pay isn't keeping up with inflation. Retail sales fell in June for a third straight month. Manufacturing has weakened in most areas of the country.

Fear is also growing that the economy will fall off a "fiscal cliff" at year's end. That's when tax increases and deep spending cuts will take effect unless Congress reaches a budget agreement.

All that is making companies reluctant to expand and hire much.

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. They can always get jobs at the Post office.

  2. Hello i am Clarisa Steve from Florida USA,when i was in need of a loan of $230,000 to transit a business my friend introduced Mark Oscar loan firm to me because she got a loan from them sometime ago, so I was so scared because of the scams in the internet but my friend encouraged me to give them a try and i gave them a try and i got my loan within 4hrs and their ways was very easy no credit check,no cosigner,no collateral and their interest rate is just 2%, so i will advice anyone out there that need a loan to contact them via their Email:(oscarloanfinance@hotmail.com).

  3. "This was a very localized, Indiana issue," he said. As in, Indiana failed to expand Medicaid to cover its poor citizens resulting in the loss of essential medical services, including this EMS company. Well done, Indiana GOP. Here are the real death panels: GOP state governments who refuse to expand Medicaid for political reasons.

  4. In the "one for all, all for none" socialist doctrine the sick die...this plus obama"care" equates to caucasian genocide plus pushed flight to cities thus further eroding the conservative base and the continualed spiral toward complete liberal/progressive/marxist America.

  5. There is a simple reason why WISH is not reporting on this story. LIN has others stations in different markets that are affiliated with CBS. Reporting about CBS blindsiding WISH/LIN due to CBS's greed and bullying tatics would risk any future negoations LIN will have with CBS in other markets.

ADVERTISEMENT