US economic growth slows to 1.5%

Posted on July 27, 2012

The US economy grew at an annualised rate of 1.5 per cent in the second quarter of 2012 as consumption growth stuttered and government spending continued to decline.

The figure, which was broadly in line with market expectations, confirms the loss of momentum in the world’s largest economy since the spring and is not fast enough to bring down high unemployment.

    It will add to the Federal Reserve’s fears about progress towards higher employment but may not be alarming enough to force immediate action at an interest rate meeting next week.

    “US economic growth has slowed to a crawl,” said Kathy Bostjancic, director for macroeconomic analysis at the Conference Board. “Given the anaemic pace of consumption and investment, plus continued austerity for state and local government spending, and weak exports, it is difficult for the domestic economy to produce at a more robust pace.”

    Consumption grew at an annualised rate of 1.5 per cent, contributing 1.1 percentage points to growth, while government spending declined at a pace of 1.4 per cent, subtracting 0.3 percentage points.

    One encouraging sign was a rebound in housing investment, which rose at an annualised rate of 9.7 per cent, albeit from a very low base.

    The release included revisions to GDP data going back to 2009, but unlike past years, they did not cause a big shift in the apparent health of the economy. Upward and downward revisions set each other off.

    The recession turned out to be slightly shallower than previously thought, with growth in 2009 revised upwards from a 3.5 per cent decline to a 3.1 per cent decline, but the recovery was slower, with 2010 growth revised down, from 3 per cent to 2.4 per cent.

    Growth in 2011 was little changed, with an upward revision from 1.7 per cent to 1.8 per cent. For the whole period, corporate investment was revised down and government spending was revised up.

    The figures did show how revisions to the data can make a big difference to understanding of the economy. At the time, strong growth was reported in the first two quarters of 2010, with a seeming pace of about 4 per cent creating optimism about the economic recovery.

    The revisions show that actual growth in that period was closer to 2 per cent, which might have prompted earlier and greater stimulus to the economy had it been understood.

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