U.S. Economy Grew 1.5% in Second Quarter

July 27, 2012
U.S. economy slowed to 1.5% from 2.0% in first quarter GDP figure unlikely to alter close presidential contest. Federal Reserve not expected to launch major new stimulus

U.S. growth slowed to 1.5% in the second quarter as consumer spending slowed, the Commerce Department said Friday.

The figure was slightly above the level expected by economists, but not high enough to blunt concern that the recovery remains weak and vulnerable to shocks.

Americans spent less on big-ticket items and invested less at home and in their place of business, lowering growth from the upwardly revised 2.0% rate seen in the first quarter of the year.

The Commerce Department also published revisions of the last few years of gross domestic product (GDP) growth data, which showed the recovery had been patchier and slightly weaker than first thought.

Growth in the last quarter of 2011 was revised up significantly from 3.0% to 4.1%, while rates in 2010 were lowered.

With almost 100 days left in the race to win the White House, the second-quarter GDP figure is unlikely to radically alter the tone of the contest between President Barack Obama and his Republican challenger Mitt Romney.

The Romney camp will view the second-quarter slowdown as further evidence that Obama's economic policies have failed.

But 1.5% growth is far from a knock-out blow.

Anything close to 2% would have been considered a victory for Obama, all but killing suggestions that the economy is ready to take another dive.

But at 1.5% the race looks set to remain nail-bitingly close.

Although Romney has heavily attacked Obama's economic policies amid poor jobs data, both candidates currently hold 46% of the vote, according to Gallup tracking polls, a level of support that has changed little in the last three months.

The second-quarter data and revisions are also unlikely to signal a dramatic departure from the Federal Reserve's current monetary policy.

The Fed has been cautious about launching any major new stimulus, preferring to wait and see whether a recent slowdown has been a blimp or a harbinger of worse times ahead.

With the scales tipped toward further stimulus, that calculus is unlikely to change.

A sharp downward revision to first-quarter GDP or a negative surprise for the second quarter "will increase the pressure on the Fed to do something next week," said Joseph LaVorgna of Deutsche Bank ahead of Friday's data.

But, he added, action at the September 12-13 meeting was more likely.

Copyright 2012 Agence France-Presse      

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