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WASHINGTON (AP) — 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.
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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.
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High gas prices and scant income gains have forced Americans to
pull back sharply on spending. Consumer spending only increased 0.1
percent in the April-June quarter, the smallest gain in two years.
Government spending fell for the third straight quarter.
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Stocks dropped in early trading, then regained some lost ground.
The Dow Jones industrial average fell 58 points, and broader
indexes also declined.
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“These numbers are extremely bad,” said Nigel Gault, an economist
at IHS Global Insight. “The momentum in the economy is clearly very
weak.”
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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.
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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.
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But if Congress fails to raise the debt limit and the government
defaults, financial markets could fall and interest rates could
rise.
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Obama cited the dismal growth figures Friday as a reason for
lawmakers to reach a solution.
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“On a day when we’ve been reminded how fragile the economy is, this
is a burden we can lift ourselves,” Obama said.
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Economists have said the negotiations have injected a large amount
of uncertainty into the frail recovery. Some businesses are holding
back on hiring and expansion plans.
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“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.”
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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“The depth of the recession is now clearly so much deeper,” Gault
said.
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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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