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Economic growth slows as consumers pull back

July 27, 2012|By Don Lee
  • A GM assembly line in Missouri.
A GM assembly line in Missouri. (Jeff Roberson / Associated…)

WASHINGTON -- U.S. economic growth slowed further in the second quarter as consumers cut back on spending and businesses curbed their investments, the government reported Friday.

The economy expanded at a sluggish annual rate of 1.5% in the April-June quarter, down from an upwardly revised 2% growth pace in the first quarter and a 4.1% increase in the final quarter of 2011.

The latest reading of the nation's gross domestic product -- the total value of goods and services produced -- was slightly better than analysts' expectations of a 1.3% gain.

Still, the deceleration confirmed that the economy has slipped into another spring stall. The loss of momentum raises the risks of more trouble ahead as Europe's economic problems hurt American exports and manufacturing, and growing angst about the so-called fiscal cliff -- looming tax increases and government spending cuts -- threatens to further weaken consumption and hiring by businesses.

An economy growing at a 1.5% pace is consistent with a monthly growth of less than 100,000 new jobs, said Sung Won Sohn, an economist at Cal State Channel Islands. "That's not enough to take care of new workers coming into the labor force, let alone rescue the unemployed," he said.

Friday's report showed that there was less of a drag from government spending in the second quarter than earlier this year. Business investments overall weakened, but spending on equipment and software was fairly robust.

But the worry is consumer spending, which accounts for about two-thirds of U.S. economic activity. Personal spending rose just 1.5% in the spring quarter, down from a 2.4% increase in the first three months of the year. Consumers pulled back sharply on their purchases of cars and big-ticket items such as appliances.

Unless the pace of job and income gains picks up, some analysts said, the latest GDP report points to more tough times ahead.

"The continued tension between slow wage growth and modest profit growth in a weak economic environment will result in a shortfall in demand, perhaps right through the end of the year," said Kathy Bostjancic, an economist at the Conference Board, a business-supported research group.

ALSO:

Fed chief gives downbeat outlook on economy

July auto sales look strong despite economic jitters

European banking official's pledge raises hope for global economy


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