US economic growth slowed dramatically to 2.4 percent in the second quarter of this year, the Commerce Department said Friday, prompting fears the recovery is losing steam.
The number was only slightly lower than the 2.5 percent rate expected by analysts, but was sharply down from the first three months of the year, signaling the brakes may have been slammed on an already tepid rebound.
In the first quarter, the rate of gross domestic product was revised to 3.7 percent, up substantially from the 2.7 percent figure previously reported.
Although the figures showed the US recession is likely over, it painted a bleak picture for the rest of the year.
“The post-recession rebound is history,” said Bart van Ark, chief economist for the The Conference Board, a leading business research group.
Governmment revisions on previous quarter GDP data showed the recession was deeper than previously thought, with the worst economic contraction at 6.8 percent in the final quarter of 2008.
Detailed data showed much of the slowdown was due to businesses reining in inventories, which had been replenished rapidly in the wake of the financial crisis.
Increased imports — which are subtracted from the GDP figure, as that money flows abroad — also played a strong role.
Americans bought more, but that spending was tilted toward foreign goods.
“Purchases by US residents of goods and services wherever produced — increased 5.1 percent in the second quarter, compared with an increase of 3.9 percent in the first,” the Commerce Department said.
“Imports of goods and services increased 28.8 percent, compared with an increase of 11.2 percent,” in the first quarter.
Friday’s figure is likely to fuel a fierce debate about whether the government needs to step in again to jump start the economy, and how best that could be done.
President Barack Obama has clashed with Republicans over the need for government to step in to help the ailing economy, making spending one of the toughest fought political battles in the US capital.
Obama’s critics accuse the president of putting Americans’ futures at risk by ballooning US debt through ineffective stimulus spending.
Obama was set to visit Detroit later Friday to tout a 64-billion-dollar bailout which kept the city’s automakers afloat, promoting it as the type of “tough decision” needed to avoid economic depression.
The White House claims one million auto jobs were saved by Obama’s actions, and the GM and Chrysler have returned to profit or are on the cusp of doing so.
The International Monetary Fund on Friday said more stimulus spending might be needed to aid a slow US economic recovery, wading into a toughly-fought political debate in Washington.
Warning that the “economic recovery has been slow by historical standards” and that “the outlook remains uncertain,” the IMF’s directors said further spending might be necessary as well as a delay budget cuts.
Businesses offered one bright spot in the Commerce Department’s report, as their investment increased 17 percent in the second quarter, compared with an increase of 7.8 percent in the first.
“Business investment was up substantially,” said Stephen Gallagher of Societe Generale, sounding a note of caution.
“Stronger profits are behind the business investment, but unfortunately, these profits are not sparking as much employment growth.”