U.S. Economy Slowed Sharply In First Half Of Year

The economy expanded at meager rate of 1.3 percent annual rate in the spring after scarcely growing at all in the first three months of the year, the Commerce Department said Friday.

The combined growth for the first six months of the year was the weakest since the recession ended. The government revised the January-March figures to show just 0.4 percent growth - down sharply from its previous estimate of 1.9 percent.

High gas prices and scant income gains have forced consumers to pull back sharply on spending in the spring.

Stock futures fell after the report was released.

"These numbers are extremely bad," said Nigel Gault, an economist at IHS Global Insight. "The momentum in the economy is clearly very weak."

The sharp slowdown means the economy will likely grow this year at a weaker pace than last year. Economists don't expect growth to pick up enough in the second half of the year to lower the unemployment rate, which rose to 9.2 percent last month.

Earlier this year, economists thought that a Social Security payroll tax cut would accelerate growth in 2011. But most of that money has gone to pay for higher gas prices. And employers have pulled back on hiring after seeing less spending by Americans.

Consumer spending was almost flat this spring. It increased only 0.1 percent, after 2.1 percent growth in the winter. Spending on long-lasting manufactured goods, such as autos and appliances, fell 4.4 percent. Many auto dealers reported shortages of popular models after Japan's March 11 earthquake, cutting into auto sales.

Complicating an already-weak economy is the debt crisis in Washington. No matter what lawmakers do to resolve that crisis, their decision will likely slow growth in the short term. A deal to raise the borrowing limit would likely include long-term spending cuts, which would withdraw government stimulus at a precarious time. If Congress fails to raise the borrowing limit and the government defaults on its debt, financial markets could fall and interest rates could rise.

Government spending fell this spring for the third straight quarter. And state and local governments cut spending, the seventh time in eight quarters since the recession ended.

The slowdown in growth was broad-based. Business spending on equipment and software grew 5.7 percent in the second quarter, down from the first quarter's 8.7 percent pace and below the double-digit gains posted last year.

Americans are seeing little gain in their incomes. After-tax incomes, adjusted for inflation, rose only 0.7 percent, matching the previous quarter and the weakest since the recession ended.

The government also revised data going back to 2003. The data show the recession was even worse than previously thought. The economy shrank 5.1 percent during the recession, which lasted from December 2007 through June 2009, compared to the earlier estimate of 4.1 percent. Both figures represent the worst downturn since World War II.

"The depth of the recession is now clearly so much deeper," Gault said.

Friday's report is the first of three estimates the government releases of the gross domestic product, which measures everything from restaurant meals to auto production to government spending.