U.S. Economy Slowed to a Tepid 1.5% Rate of Growth
U.S. Economy Slowed to a Tepid 1.5% Rate of Growth
By SHAILA DEWAN
Published: July 27, 2012
The United States economy grew by a tepid 1.5 percent annual rate in the
second quarter, losing the momentum it had appeared to be gaining
earlier this year, the government reported Friday.
Steven Senne/Associated Press
Workers on the assembly line at a New Balance shoe factory in Boston in May.
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Heng: Editorial Cartoon (July 27, 2012)
Growth was curbed as consumers limited new spending and as business
investment slowed in the face of a global slowdown and a stronger
dollar. Several bright spots in the first quarter, including auto
production, computer sales, housing and large purchases like appliances
and televisions, dimmed or faded away altogether in the second quarter.
The sluggishness of the recovery makes the United States more vulnerable
to trouble in Europe and increases the likelihood of more stimulus from
the Federal Reserve, which has lowered its forecasts in recent weeks.
It also illustrates the election-season challenge to President Obama,
who must sell his economic record to voters as the recovery slows.
The lackluster showing of the gross domestic product
immediately gave Mr. Obama’s opponents the opportunity to question the
federal government’s response to the financial crisis, though the vast
majority of economists agree that the stimulus and the bank bailouts
saved jobs. The G.D.P. report, released Friday by the Commerce Department, also spurred calls from liberals for the government to do more.
In part, the weakening was to be expected after an unseasonable spurt
during the warm winter, and in part it followed the pattern of the past
couple of years — one of hopes raised, then dashed. While the economy
has not entered a downward spiral in which weakness feeds on itself,
wrote Jim O’Sullivan, the chief U.S. economist for High Frequency
Economics, an analysis firm, “There does not appear to be much basis for
expecting a significant pickup any time soon.”
In the first quarter, the economy grew by a 2 percent annual rate,
according to the revised figures. Its previous estimate was 1.9 percent.
A slowdown in household spending was the primary damper on growth, as
consumers increased their savings rate, a sign of increased uncertainty
about the future. State and local governments also cut spending. Exports
continued to accelerate in the second quarter despite more recent signs
of diminishing demand.
The pace of the recovery may show that economic rebounds following
financial busts simply take their own excruciating time.
“You can’t blame all of it on Europe — we have our own problems yet,”
said Joshua Shapiro, the chief United States economist at MFR Inc., a
financial consulting firm. “When you have a credit bubble or asset
bubble that’s popped, the recovery process from that is just really long
and really painful.”
Inflation, a measure watched closely by the Federal Reserve as it
determines whether to take further action, slowed as well, with consumer
prices growing only 0.7 percent compared to 2.5 percent in the first
quarter.
The Commerce Department also released updated estimates of economic activity for 2009, 2010 and 2011. Those figures showed that the recession
was less deep than it seemed in the most recent reports — though more
pronounced than in initial readings — and, as a consequence, that the
pace of recovery also appears somewhat slower.
The new estimates show that economic activity fell by 3.1 percent in
2009 and then rose by 2.4 percent in 2010. Last summer, the government
reported that activity fell by 3.5 percent in 2009 before rising 3
percent in 2010. The estimated pace of growth in 2011, 1.8 percent,
remained basically unchanged. It was previously reported as 1.7 percent.
The revisions, part of an annual process, reflect the imprecise nature
of the agency’s work. Its initial estimates are derived from a mix of
comprehensive data, samples and educated guesswork, and refined over
time. In this case, officials said they had significantly underestimated
spending by state and local governments in 2009, and overestimated
corporate profits and purchases in 2010.
The agency now estimates average annual growth of 0.3 percent over the three-year period, rather than 0.4 percent.
But the new numbers may modify public perception of two key economic
trends. It appears that corporations rebounded more slowly from the
recession than previously believed. And the more complete data used in
the new estimates show state and local governments increased spending in
2009 before cutting back in the next two years. Officials said they did
not have enough information to explain the previously unreported
increase, except to say the money was not spent on personnel or on
infrastructure projects, the two categories that might have benefited
most directly from the federal government’s stimulus programs.
This article has been revised to reflect the following correction:
Correction: July 27, 2012
An earlier version of this article, as well as an accompanying summary and an e-mail alert, misstated the second-quarter trend in exports. They grew at a faster rate than in the first quarter; they did not flatten.
Correction: July 27, 2012
An earlier version of this article, as well as an accompanying summary and an e-mail alert, misstated the second-quarter trend in exports. They grew at a faster rate than in the first quarter; they did not flatten.
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Spain and Germany Provide Reality Check on Euphoria
By RAPHAEL MINDER and JACK EWING
Published: July 27, 2012
MADRID — A day after markets rose sharply over comments from the European Central Bank president in strong support of the euro, data from Spain showed the fragility of the underlying economy as the region’s debt crisis drags on.
And as a reminder that any E.C.B. action could meet resistance from the
euro zone’s richest member, Germany’s central bank said Friday it
remained opposed to massive purchases of government bonds by the E.C.B.
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