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

Associated Press
July 27, 2012
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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.

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  1. So much for Eric Holder's conversation about race. If white people have got something to say, they get sued over it. Bottom line: white people have un-freer speech than others as a consequence of the misnamed "Civil rights laws."

  2. I agree, having seen three shows, that I was less than wowed. Disappointing!!

  3. Start drilling, start fracking, and start using our own energy. Other states have enriched their citizens and nearly elminated unemployment by using these resources that are on private land. If you are against the 'low prices' of discount stores, the best way to allow shoppers more choice is to empower them with better earnings. NOT through manipulated gov mandated min wage hikes, but better jobs and higher competitive pay. This would be direct result of using our own energy resources, yet Obama knows that Americans who arent dependent of gov welfare are much less likely to vote Dem, so he looks for ways to ensure America's decline and keep its citizens dependent of gov.

  4. Say It Loud, I'm Black and Ashamed: It's too bad that with certain "black" entertainment events, it seems violence and thuggery follows and the collateral damage that it leaves behinds continues to be a strain on the city in terms of people getting hurt, killed or becoming victims of crimes and/or stretching city resources. I remember shopping in the Meadows area years ago until violence and crime ended make most of the business pack you and leave as did with Lafayette Square and Washington Square. Over the past 10 to 12 years, I remember going to the Indiana Black Expo Soul Picnic in Washington Park. Violence, gang fights and homicides ended that. My great grandmother still bears the scares on her leg from when she was trampled by a group of thugs running from gun fire from a rival gang. With hundreds of police offices downtown still multiple shootings, people getting shot downtown during Black Expo. A number of people getting shots or murdered at black clubs around the city like Club Six on the west side, The Industry downtown, Jamal Tinsley's shot out in front of the Conrad, multiple fights and shootings at the skating rinks, shootings at Circle Center Mall and shooting and robberies and car jackings at Lafayette Mall. Shootings and gang violence and the State Fair. I can go on and on and on. Now Broad Ripple. (Shaking head side to side) Say It Loud, I'm Black and I'm Ashamed.

  5. Ballard Administration. Too funny. This is the least fiscally responsive administration I have ever seen. One thing this article failed to mention, is that the Hoosier State line delivers rail cars to the Amtrak Beech Grove maintenance facility for refurbishment. That's an economic development issue. And the jobs there are high-paying. That alone is worth the City's investment.

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