U.S. economic growth slows in spring

WASHINGTON - U.S. economic growth slowed sharply in the spring, the government reported Friday, adding to prospects for continuing financial pressures on millions of American families and a long, drawn-out struggle for the unemployed.

While many economists had expected growth to moderate, the reported decline was a jolting 35 percent below the previous quarter - falling from an upwardly revised 3.7 percent expansion rate in the first quarter to just 2.4 percent in the April-June period.

In 2009 household spending fell 1.2 percent, twice as much as previously projected and the biggest decline since 1942. Commerce officials also revised down the growth in real GDP - the total value of goods and services produced in the United States after adjusting for inflation - for the fourth quarter of last year, to 5 percent from 5.6 percent, as well as for some prior quarters.

The data better explain why the jobless rate doubled, reaching a 26-year high of 10.1 percent in October, and has been slow to subside. The rebound from the recession was more subdued in the last six months of 2009, as the economy grew at an average 3.3 percent annual pace from July 2009 through December, instead of the 3.9 percent previously projected.

Overall, the new data painted a picture of a deeper recession than previously believed.

Though the economy has now grown four quarters in a row, economists still fret about the possibility that it will slip into a recession again - the dreaded "double dip."

"The odds are we'll muddle through without backstepping into recession," said Mark Zandi, chief economist at Moody's Analytics. "But the odds are uncomfortably high that I'm wrong."

Underlying the government's report was an unusual crosscurrent running through the economy: Corporate America is flourishing, investing heavily in new computers and other equipment, whereas many consumers are cutting back their spending as they try to pare down debts.Companies invested in equipment and software this spring at the fastest pace in 13 years. But some spending on equipment that increases productivity actually makes it easier for companies to not hire more workers.

Yet if consumers don't step up their spending - which accounts for 70 percent of the economy - businesses won't invest much more for very long.

Consumer spending rose a meager 1.6 percent in the second quarter, down from 1.9 percent in the first three months of the year, according to the Commerce Department.