30 Jul 2011

Economic growth in US much weaker

6:32 am on 30 July 2011

Economic growth in the United States is much weaker than previously thought.

The Commerce Department said the economy grew at an annualised rate

of 1.3% in the second quarter. Economists had forecast growth of 1.8%.

The main reason was that consumer spending virtually ground to a halt, growing by just 0.1%, compared with 2.1% growth in the first quarter.

And in a surprise move, first-quarter growth was revised down from 1.9% to 0.4%.

In addition, growth for the fourth quarter of 2010 was revised down from 3.1% to 2.3%, indicating that the economy had already started slowing before the end of last year.

The BBC reports this evidence of economic weakness increases the pressure on the government as it attempts to increase its borrowing limit.

Slow growth makes it more difficult for the US to tackle its deficit.

The Commerce Department now says that the US recession of 2007-2009 was more severe than previously reported, with the economy shrinking by 5.1% over that period, rather than 4.1%.

But it also says that growth in 2010 was a bit stronger than it had first estimated. It now puts 2010 growth at 3%, up from the previous 2.9%.

If Congress does not raise the debt limit by 2 August, the federal government could face funding shortfalls that it cannot meet by extra borrowing.

US markets opened lower on Friday, with the Dow Jones, the S&P 500 and the Nasdaq all falling 1% in early trade.

European markets, which were already in negative territory, saw further falls after the figures were released.