US economic growth stagnated in first half

A flood of terrible numbers on gross domestic product (GDP) growth from the Commerce Department sent US stocks into a tailspin. The Dow Jones Industrial Average was down more than 100 points in the first hour of New York trade.

Second-quarter GDP grew only 1.3 percent, down a hefty 0.4 points from market expectations, as consumer spending, which accounts for the majority of US output, stalled amid high unemployment and inflation-eroded incomes.

In the first quarter, growth was at a dead-pace 0.4 percent, not the 1.9 percent previously estimated.

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

"This is a shockingly weak GDP report that shows the economy growing at less than a 1.0 percent pace in the first half of the year," John Ryding and Conrad DeQuadros at RDQ Economics said.

"The weak numbers raise questions about the sustainability of the recovery in the second half of 2011," Moody\'s Analytics said.

Annual revisions of the data for recent years, including the 2011 first quarter, also delivered a far gloomier picture of the health of the world\'s largest economy 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 four 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 deadline will result in the United States losing its top triple-A credit rating and the economy taking a further hit.

"This was an ugly report that should wake up those in Washington who still have their thinking caps on. The last thing this economy needs is more uncertainty and a debt default," said Joel Naroff of Naroff Economic Advisors.

"There is no margin for error and a default that lasted any length of time could push us back into recession," he warned.

The weak numbers for the April-June period reflected a slew of headwinds, including 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 negative factors offset growth that came mainly from exports, nonresidential fixed investment, private inventory investment and federal government spending, the department said.

The economy remained well below the strength needed to create jobs, leaving the troubled labor market with unemployment at 9.2 percent 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 percent of the US economy, edged up just 0.1 percent, the first time it was virtually unchanged since the economy officially exited recession in June 2009. It had climbed 2.1 percent 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 percent annually, instead of growing 0.1 percent each year as previously estimated.

In the worst quarter of the period, October-December 2008, the economy shrunk at a rate of 8.9 percent.

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