US economic growth stagnated in first half

The US economy grew at a dead-pace 0.4 per cent in the first quarter and only 1.3 per cent in the second quarter of 2011, the government said Friday in a report that was far worse than expected.

It was the weakest growth since the world's largest economy officially exited recession two years ago, and raised doubts about widespread forecasts of a 3.0 per cent-plus pace for the rest of the year.

The Commerce Department sharply revised lower its previous estimate of first-quarter gross domestic product (GDP) growth of 1.9 per cent.

The department also made sharp revisions to growth in earlier years that showed the US economy suffered much more during the financial crisis than had been understood.

The surprisingly weak GDP readings on the world's largest economy came amid a political deadlock in Washington over raising the country's debt ceiling just days before the Treasury says it could run out of money to pay its obligations.

With no sign of an agreement in Congress, economists and markets are increasingly worried that missing the August 2 debt deadline will result in the United States losing its top triple-A credit rating and the economy taking a further hit.

The numbers for the April-June period fell short of expectations of an already-sluggish 1.7 per cent growth pace as the economy suffered a slew of headwinds.

The tough second quarter included high commodity prices, Japanese supply-chain disruptions from the March 11 earthquake, financial market jitters over Europe's debt crisis and a gridlocked US government over deficit-reduction and debt.

Imports increased, subtracting from the GDP number.

The economy remained well below the strength needed to create jobs, leaving the troubled labour market with unemployment at 9.2 per cent in June.

Second-quarter activity was led by business investment and international trade, while consumer spending stalled and public spending fell.

Consumer spending, which normally drives 70 per cent of the US economy, edged up just 0.1 per cent, the first time it was virtually unchanged since the economy officially exited recession in June 2009. It had climbed 2.1 per cent in the prior quarter.

The department's annual revisions also gave a grim assessment of the economy's performance during the financial crisis, which peaked in 2008-2009, triggering the worst recession since the 1930s Great Depression.

It said during 2007-2010, the economy contracted an average 0.3 per cent annually, instead of growing 0.1 per cent each year as previously estimated.

In the worst quarter of the period, October-December 2008, the economy shrunk at a rate of 8.9 per cent. (Business Times)