The US economy ground to a virtual halt in the first half of the year, with consumer spending at its weakest level in two years.
The world's largest economy grew by just 0.4% between January and June – half the pace of growth in austerity Britain. To make matters worse, total loss of economic output in the 2007-2009 recession was revised to 5.1% from a previous estimate of 4.1%.
The shock figures sent shares tumbling in London. The FTSE 100 index extended losses to fall 84 points to 5789, a decline of 1.4%.The Dow Jones fell by as much as 130 points in early trading.
The data comes at a time when the White House and Congress are locked in a battle over how to raise the debt ceiling to allow the government to borrow more money. If they cannot agree, the government will soon run out of money, leaving it unable to pay items such as social security payments, military pay and interest payments.
The US economy grew at an annualised rate of 1.3% between April and June, the US commerce department said on Friday. Wall Street economists had expected 1.8%. Moreover, the first quarter growth rate was revised sharply lower to 0.4% from 1.9%, which means the economy barely grew over the first six months of the year. Growth in the fourth quarter of last year was also revised down, to 2.3% from 3.1%.
"It is hard to conclude other than that the US economy is in deep trouble," said Nick Parsons, head of research, UK and Europe and global head of FX strategy at National Australia Bank.
"A very weak labour market, falling real incomes and house prices are hardly the basis for a sharp pickup in growth through the summer months. And, when a compromise agreement over the debt ceiling is finally reached, it is sure to contain measures to reduce the growth of government spending."
Consumer spending grew by just 0.1% in the second quarter, the weakest since the recession ended two years ago. Car production was severely disrupted by the earthquake in Japan.
Economists said the data could prompt the Federal Reserve to restart its quantitative easing (QE) programme to pump money into the economy.
"While this is somewhat disappointing, the big surprise is in the revisions, which show growth being downgraded sharply in the first and fourth quarters," said James Knightley, senior economist at ING. "Furthermore, the recession was deeper, and started earlier, than previously thought. This further reduces the prospect of any Fed policy tightening and offers some support to those arguing the case for QE3."
This means the US economy contracted by 0.3% in 2008, rather than posting zero growth, while in 2009 the economy shrank by 3.5% rather than 2.6%.
The American economy needs to grow by at least 2.5% to bring down the country's 9.2% unemployment rate.
by Julia Kollewe taken from http://www.guardian.co.uk/business/2011/jul/29/us-economic-growth-slows-down-sharply
The world's largest economy grew by just 0.4% between January and June – half the pace of growth in austerity Britain. To make matters worse, total loss of economic output in the 2007-2009 recession was revised to 5.1% from a previous estimate of 4.1%.
The shock figures sent shares tumbling in London. The FTSE 100 index extended losses to fall 84 points to 5789, a decline of 1.4%.The Dow Jones fell by as much as 130 points in early trading.
The data comes at a time when the White House and Congress are locked in a battle over how to raise the debt ceiling to allow the government to borrow more money. If they cannot agree, the government will soon run out of money, leaving it unable to pay items such as social security payments, military pay and interest payments.
The US economy grew at an annualised rate of 1.3% between April and June, the US commerce department said on Friday. Wall Street economists had expected 1.8%. Moreover, the first quarter growth rate was revised sharply lower to 0.4% from 1.9%, which means the economy barely grew over the first six months of the year. Growth in the fourth quarter of last year was also revised down, to 2.3% from 3.1%.
"It is hard to conclude other than that the US economy is in deep trouble," said Nick Parsons, head of research, UK and Europe and global head of FX strategy at National Australia Bank.
"A very weak labour market, falling real incomes and house prices are hardly the basis for a sharp pickup in growth through the summer months. And, when a compromise agreement over the debt ceiling is finally reached, it is sure to contain measures to reduce the growth of government spending."
Consumer spending grew by just 0.1% in the second quarter, the weakest since the recession ended two years ago. Car production was severely disrupted by the earthquake in Japan.
Economists said the data could prompt the Federal Reserve to restart its quantitative easing (QE) programme to pump money into the economy.
"While this is somewhat disappointing, the big surprise is in the revisions, which show growth being downgraded sharply in the first and fourth quarters," said James Knightley, senior economist at ING. "Furthermore, the recession was deeper, and started earlier, than previously thought. This further reduces the prospect of any Fed policy tightening and offers some support to those arguing the case for QE3."
This means the US economy contracted by 0.3% in 2008, rather than posting zero growth, while in 2009 the economy shrank by 3.5% rather than 2.6%.
The American economy needs to grow by at least 2.5% to bring down the country's 9.2% unemployment rate.
by Julia Kollewe taken from http://www.guardian.co.uk/business/2011/jul/29/us-economic-growth-slows-down-sharply
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