US growth 'slower than expected'

The US economy grew less than expected in the second quarter as consumer spending barely rose, and growth braked sharply in the prior quarter, a government report showed today.

Growth in gross domestic product - a measure of all goods and services produced within US borders - rose at a 1.3 per cent annual rate, the Commerce Department said. First-quarter output was sharply revised down to a 0.4 per cent pace from 1.9 per cent.

Economists had expected the economy to expand at a 1.8 per cent rate in the second quarter.

In addition, fourth-quarter growth was revised down to a 2.3 per cent pace from 3.1 per cent, indicating that the economy had already started slowing before the high gasoline prices and supply chain disruptions from Japan hit.

Economists had expected the economy would show signs of perking up by now with Japan supply constraints easing and gasoline prices off their high, but data has disappointed. This and the sharp downward revisions to the prior quarters suggest a more troubling and fundamental slowdown might be underway.

There is also heightened uncertainty over the outlook because of the impasse in talks to raise the nation's borrowing limit and avoid a damaging government debt default.

The Treasury says the government will soon run out of money to pay all its bills.

Economists have warned that a debt default could push the fragile economy over the edge.

"The implications of more rancorous foot dragging would be bad for an economy already in a precarious state," said Julia Coronado, chief North America economist at BNP Paribas in New York. "Uncertainty continues to tax an already fragile recovery."

Data released today showed the 2007-2009 recession was much more severe than prior measures had found, with economic output declining a cumulative of 5.1 per cent instead of 4.1 per cent.

The annual revisions of US GDP data from the Commerce Department showed the economy contracted at an annual average rate of 0.3 per cent between 2007 and 2010. Output over that stretch had previously been estimated to have been flat.

The economy needs to grow at a rate of 2.5 per cent or better on a sustained basis to chip away at the nation's 9.2 per cent unemployment rate.

Consumer spending, which accounts for about 70 per cent of US economic activity, decelerated sharply to a 0.1 per cent rate - the weakest since the recession ended two years ago.

Spending grew at a 2.1 per cent pace in the first quarter.

Reuters