- The Washington Times - Friday, July 27, 2012

U.S. economic growth slowed to a crawl in the spring quarter, trudging ahead at a 1.5 percent annual rate after falling off to 2 percent in the first quarter of the year, the Commerce Department reported Friday morning.

The slowdown was driven by a drop in consumer spending, which increased by only 1.5 percent in the second quarter after posting a healthier 2.4 percent gain earlier this year. People bought fewer cars and other big-ticket goods. Reflecting a hefty 3.2 percent gain in disposable income, however, they picked up spending on smaller items and services such as vacations and haircuts while stowing more of their income away, driving the savings rate to a one-year high of 4 percent.

Business investment spending on computers and new buildings, which had been growing at double-digit rates, also slowed to 6.1 percent during the quarter. Housing investment posted a hearty gain of 9.7 percent after zooming back to life with a 20.5 percent surge at the beginning of the year.

Exports continued to be a bright spot in the economy, growing by 5.3 percent despite a recession in Europe and sharp slowdown in China and other major trading partners.

But government cutbacks at all levels — federal, state and local — were a drag on growth for the eighth straight quarter, falling by 1.4 percent in the spring.

“We have an anemic recovery with really no momentum,” said Julia Coronado, chief economist at BNP Paribas. “It’s reflective of uncertainty in the global outlook. It’s a frustrating picture for policymakers.”

That echoed Federal Reserve Chairman Ben Bernanke’s assessment that the recovery has been “frustratingly slow,” although economists don’t think the slowdown this year has been sharp enough to prompt the Fed to further loosen monetary policy at a meeting scheduled for next week.

The slow but steady growth seen in Friday’s report was largely expected in financial markets. Stocks rallied moderately after it was released, with the Dow Jones Industrial Average gaining 51 points.

The department’s annual revisions showed that growth was somewhat slower earlier in the recovery in 2010 and 2011, but the Great Recession in 2008 and early 2009 was not quite as devastating as previously reported. The cumulative loss of economic output during the recession was revised to 4.7 percent from 5.1 percent, reflecting smaller losses in many sectors and higher state and local spending.

The picture of a plodding recovery in the economy in the first half of the year sets the stage for the November elections, in which the economy’s performance is likely to be a critical deciding factor.

President Obama says the evidence shows his policies of nurturing the economy back to growth worked, although the rate of growth and job gains remain sub-par and disappointing.

Mitt Romney, the expected Republican nominee, contends that the tepid growth rate shows Mr. Obama has been unable to inspire a more robust recovery and that new leadership is needed.

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