Growth weakens, debate over government role intensifies

American consumers cut back sharply on spending in recent months, slowing the nation’s already sluggish rate of economic growth.

The economy grew at an annual rate of 1.5 percent from April through June, the Commerce Department reported Friday, a pace that confirmed fears that the economy continues to sputter.

A growth rate below 2 percent isn’t enough to lower the unemployment rate, which was 8.2 percent last month. And few analysts expect the economy to gain momentum in the second half of the year, as concern about debt problems in Europe and the fiscal cliff — a series of tax increases and spending cuts due to take effect in January unless policy makers find an alternative — dampen confidence.

The estimated rate of economic growth in the second quarter marked the weakest quarterly gross domestic product reading since last fall and promises to sharpen the scrutiny on President Obama’s fiscal policies.

The campaign of Republican presidential challenger Mitt Romney seized on the tepid number Friday morning, saying it was indicative of the president’s poor economic stewardship.


Gross domestic product up 1.5 percent. (The Washington Post/Source: Bureau of Economic Analysis)

“It’s very disappointing for the future of the economy,” R. Glenn Hubbard, Romney’s top economic adviser, said on CNBC. “It’s about half of what potential growth actually is in the American economy, and recoveries should be much more vigorous even after financial crises.”

Obama administration officials said the economy was being hurt by the fiscal turmoil in Europe and the decline in spending from local and state governments. “Our economy continues to heal from the worst economic downturn since the Great Depression, but there is much more work to be done,” said acting Commerce Secretary Rebecca Blank.

She and other Obama administration officials said Congress should act on the president’s jobs proposal, which would invest in infrastructure, hire more state and local government workers, double the payroll tax cut and offer new tax cuts for small businesses. Republicans have blocked the initiative, saying they oppose a tax surcharge on millionaires to pay for the measure.

The GDP report said growth in consumer spending — which accounts for about 70 percent of economic activity — slowed to an annualized rate of 1.5 percent in the second quarter, down from 2.4 percent in the first three months of the year. Automobile sales slowed from the first quarter, and spending on durable goods was down 1 percent, after being up sharply in the first three months of the year. The savings rate, which was pegged at 3.6 percent for the first quarter, bumped up to a 4 percent rate between April and June.

The report also included revised growth estimates for the past three years. The new estimates showed that the economy shrank by 3.1 percent in 2009, slightly less than the 3.5 percent previously reported. Growth in 2010 was 2.4 percent, down from 3 percent, and growth in 2011 was 1.8 percent instead of 1.7 percent.

The Commerce Department also said that the economy in the first three months of 2012 grew slightly more than previously reported, raising its estimate to a 2 percent rate, from 1.9 percent.

Economists speculated that the continued weak GDP growth — which has averaged 2.2 percent since the recovery began three years ago — would spur the Federal Reserve to take further action to lower long-term interest rates in hopes of stimulating the economy.

“GDP growth for 2012 is at risk of undershooting the Federal Reserves already subdued expectations,” Ryan Wang, U.S. economist for HSBC, wrote in a note to investors. “. . . Growth will need to average 2.6 percent in the second half of the year for the Fed’s projection to be met. If policymakers feel this pace of growth is no longer likely, they may decide to pursue further monetary easing.”

Michael A. Fletcher is a national economics correspondent, writing about unemployment, state and municipal debt, the evolving job market and the auto industry.
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