Recovery loses speed as consumers turn cautious

WASHINGTON (AP) — The recovery lost momentum in the spring as growth slowed to a 2.4 percent pace, its most sluggish showing in nearly a year and too weak to drive down unemployment.

Consumers spent less, companies slowed their restocking of shelves and the nation’s trade deficit dragged more on the economy in the April-to-June quarter. In a separate report, the Commerce Department said the recession was deeper than previously estimated.

Together, the reports raise doubts about whether employers will hire enough and consumers will spend enough to invigorate the economy. As unemployment remains near double digits, Congress could feel pressure to pass more stimulus measures to speed the recovery. So far, Republicans and some Democrats have blocked additional spending because of their concerns about the size of the deficit.

Investors reacted to the report with disappointment. Stock futures fell in the hour before the markets opened.

The Commerce Department report released Friday did offer some encouraging. Businesses invested the most in 13 years on equipment and software during the second quarter. For the first time in two years, builders boosted spending on commercial projects. And home builders spent the most in 27 years, although many expect that to fade now that government homebuying tax credits have expired.

The report also showed that the economy grew at a 3.7 percent pace in the first three months of this year. That was much better than the 2.7 percent pace estimated just a month ago.

Still, the recovery has been losing power for two straight quarters. That raises concerns about whether it will fizzle out. Or worse, tip back into a “double-dip” recession.

The economy began to grow in the third quarter of last year after having suffered the worst recession since the Great Depression. And in the following quarter the economy’s growth surged at a 5 percent pace, the high water mark of the rebound.

Much of the expansion was driven by the government’s massive $862 billion stimulus package of tax cuts and increased spending. Also, companies helped energize growth with a burst of spending to replenish inventories that were cut down during the recession.

Now, as those forces are fading, concerns are growing as to whether the private sector can boost spending and investment enough to keep the recovery afloat.

Consumer spending, usually the lifeblood of economic activity, slowed in the second quarter. Such spending rose at an anemic 1.6 percent pace. That was down from a 1.9 percent pace in the first quarter and was the weakest showing since the end of last year.

Instead, Americans saved more. They saved 6.2 percent of their disposable income in the second quarter, the highest share in a year.

The 2.4 percent growth rate logged in the April-to-June quarter was slightly less than the 2.5 percent pace economists were forecasting. It was the weakest since a 1.6 percent pace in the third quarter of last year, when a record streak of four straight losing quarters came to an end.

“The economy is growing but not enough to make most Americans happy. At this weak pace, it will take more time than many hoped for people to really feel the benefits of this upturn,” said Joel Naroff, president of Naroff Economic Advisors.

In the revisions issued Friday, the government estimated that the economy shrank 2.6 percent last year — the steepest drop since 1946. That’s worse than the 2.4 percent decline originally estimated. The economy’s plunge underscores why the unemployment rate surged to 10.1 percent in October, a 26-year high.

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