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Economy loses speed in spring; more weakness ahead
Question of the Day
WASHINGTON (AP) — The nation’s economic growth tailed off sharply in the spring and probably isn’t faring any better now.
Gross domestic product — the broadest measure of the economy’s health — expanded at a feeble 1.7 percent annual rate in the April-June quarter, the Commerce Department reported Thursday.
That’s a notch higher than the 1.6 percent growth rate the government estimated a month ago. The slight change was due mostly to a little more spending by consumers than first estimated. Still, that’s not enough to have a major impact on the economy.
The second-quarter estimate is a sharp slowdown from a 3.7 percent growth rate logged in the first quarter.
Many economists don’t expect economic growth to improve much during the July-September quarter or in the final quarter of this year. Unemployment, now at 9.6 percent, is expected to stay high or even rise in the coming months.
Americans aren’t spending enough to give companies the kind of confidence in the economy that leads to rapid hiring.
Consumers did boost their spending in the second quarter at a 2.2 percent pace. It was a tad better than the government’s previous estimate of 2.0, but it still is considered lackluster for this point in the recovery by historical standards. Economists think consumers will spend at a slightly slower pace through the rest of this year.
Consumer spending is important because it accounts for roughly 70 percent of economic activity.
In the second quarter, Americans saved 5.9 percent of their disposable income, the most in a year. Before the recession, they saved just 2.1 percent.
The economy is the top issue heading into the congressional midterm elections. Voter backlash could cause Democrats to lose control of Congress.
GDP measures the value of all goods and services produced in the United States.
The sharp drop-off in the second quarter mainly reflected fallout from a bigger trade deficit. A surge in imported goods swamped growth in U.S. exports to other countries. The bigger trade gap that resulted shaved 3.5 percentage points from second-quarter growth, the most since 1947.
Another major factor in the economy’s slowdown: Businesses added to their stockpiles of goods at a slower pace in the spring, reflecting concerns about the spending appetites of their customers.
The economy’s growth has to be much stronger than what the country has been logging to lower unemployment. Under one rule of thumb, the economy would have to expand by at least 5 percent for an entire year to drive down the jobless rate by 1 percentage point.
The Federal Reserve is weighing new action to bolster the economy. One likely step is to buy more government debt. Doing so would be aimed a lowering rates on mortgages, corporate loans and other debt. The Fed’s goal: to get Americans to boost their spending, which would strengthen the economy.
By Matt Kibbe
The short-term deal will assure long-term overspending
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