U.S. economic recovery stalls; more pain likely

NEW YORK - There is no more disputing it: The economic recovery in the United States has slowed.

The nation's economy has been growing for a year, with few new jobs to show for it.

Now, with the government reporting a growth rate of just 2.4 percent in the second quarter and federal stimulus measures fading, the jobs outlook appears even more discouraging.

"Given how weak the labor market is, how long we've been without real growth, the rest of this year is probably still going to feel like a recession," said Prajakta Bhide, a research analyst for the U.S. economy at Roubini Global Economics. "It's still positive growth - rather than contraction - but it's going to be very, very protracted."

A Commerce Department report yesterday showed that economic growth slipped sharply in the latest quarter from an annual rate of 5 percent at the end of 2009 and 3.7 percent in the first quarter of 2010.

Consumer spending, however, was weaker than initially indicated earlier in the recovery.

Many economists are forecasting a further slowdown in the second half of the year, perhaps to an annual rate as low as 1.5 percent.

That is largely because businesses have refilled the stockroom shelves that were whittled down during the financial crisis and there will not be much need for more orders.

In addition, the fiscal stimulus measures that have propped up growth are expiring. Proposals for individual programs such as another expansion of unemployment benefits have been beaten back each time they have come up in Congress.

U.S. businesses, if not households, seem to be hanging on.

The crucial driver of growth in the second quarter was business investment in such things as office buildings and equipment and software.

Such activity rocketed up at an annual rate of 17 percent in the second quarter, compared with a 7.8 percent increase in the first. The equipment and software category alone grew at an annual rate of 21.9 percent, the fastest pace in 12 years.

"We're seeing a sort of handover from consumer spending to capital spending," said John Ryding, chief economist at RDQ Economics.

"The consumer also looks to have saved more than we thought before, which means they're perhaps further on the road to financial adjustment than we thought they were previously," he said.

Consumer spending, which is usually a leading indicator of a recovery and which accounts for most economic activity in the United States, has been leveling off.

It grew at an annual rate of 1.6 percent in the second quarter after a 1.9 percent rate in the previous quarter.

Personal savings was estimated at 6.2 percent of disposable income last quarter, significantly higher than the 4 percent that had been estimated earlier.

A separate report by the University of Michigan and Thomson Reuters showed that consumer confidence tumbled in July.

The fact that businesses seem to be investing more in equipment than in hiring may be a reason consumers have been reluctant, or perhaps unable, to pick up the pace of their spending.

The economy has now grown four quarters in a row, but economists still fret about the possibility that it will slip into a recession again - the dreaded "double dip."

"The odds are we'll muddle through without backstepping into recession," said Mark Zandi, chief economist at Moody's Analytics. "But the odds are uncomfortably high that I'm wrong."

The government also painted a portrait of a deeper recession when it released revised data for the past three years.

Overall, 2009 and 2008 were slightly worse than reported earlier, but the first quarter of 2010 was better.

In the revisions issued yesterday, the government estimated the economy shrank 2.6 percent last year. That's worse than the 2.4 percent decline originally estimated.

It takes about 3 percent growth in gross domestic product just to create enough jobs to keep pace with population growth. And economic growth would have to equal 5 percent for a full year to drive the unemployment rate down by a single percentage point.

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There is no more disputing it: The economic recovery in the United States has slowed.