Feds: Economic growth slower than expected
The U.S. economy grew more slowly during the April-June period than anticipated and nearly stalled earlier this year, according to a report released Friday.
The gross domestic product, the sum of all goods and services produced nationwide, expanded at a yearly rate of 1.3 percent in the second quarter, the federal Bureau of Economic Analysis said. That's 5 percentage points below economists' forecast. Many peg healthy GDP growth at 3.2 percent.
Economists blamed the weak fiscal performance on multiple factors, including a spike in gasoline prices that caused consumers to open their wallets less frequently and a slump in auto sales because of a scarcity of parts following factory closures in Japan due to the earthquake and tsunami there. Commercial activity also lagged because of layoffs and spending cuts by government at all levels.
The report came four days before Tuesday's deadline to raise the federal borrowing limit. President Barack Obama and congressional leaders remained at loggerheads Friday night and some economists expressed concern that failure to raise the limit would produce the first-ever downgrading of U.S. credit and send the economy back into recession. Such a prospect helped roil the stock markets.
"The U.S. economy is weak and definitely becoming weaker," said Panos Mourdoukoutas, economics department chairman at the C.W. Post Campus of Long Island University. "We run the risk of a double-dip [recession] because there's very little that can be done to stimulate growth."
The severity of the 18-month recession, which ended in June 2009, was borne out in Friday's report. GDP contracted 8.9 percent and 6.7 percent at the end of 2008 and beginning of 2009, respectively. That's about 2 percentage points worse than previously reported.
Mourdoukoutas and others noted that about 70 percent of economic activity is consumer spending, but with jobs scarce, wages flat and interest rates near zero there isn't the impetus for buying. "We're in a vicious cycle that could lead to prolonged stagnation like Japan experienced for 10 years."
On Long Island, spending has slowed considerably, judging from sales-tax collections.
Nassau and Suffolk counties saw sales-tax receipts increase on average 6 percent for each of the four quarters of 2010 compared with 2009. However, receipts only grew 0.1 percent in the January-March period compared with 2010 and 1 percent in April-June.
"People are starting to worry about another recession," said Pearl Kamer, chief economist at the Long Island Association. "Job growth is weak, wage growth is absolutely flat and I don't see a turnaround in the housing market until late next year . . . There are few prospects for an increase in consumer spending," which propels growth.
The economic analysis bureau also revised national GDP for the January-March period, saying Friday that the U.S. economy grew at a 0.4 percent rate, not 1.3 percent.
In light of this revision, some economists were cautiously optimistic about business activity in the second half of this year.
"The recent decline in gasoline prices will provide a lift to consumer spending," said Gus Faucher, macroeconomics director at the forecasting service Moody's Analytics.