July 27, 2012 at 8:42 AM ET
The U.S. economy grew at the slowest pace in almost a year between April and June as consumers and businesses succumbed to a raft of worries about jobs, wages, Washington and Europe.
The Commerce Department reported that Gross Domestic Product expanded at a 1.5 percent annual rate in the second quarter, after rising at an upwardly revised 2.0 percent pace from January to March. Output for the fourth quarter was raised to a 4.1 percent rate from 3.0 percent.
The second quarter's growth rate, which was in line with economists' expectations, was the slowest since the third quarter of 2011. It raises a big hurdle for President Barack Obama as he battles for re-election in November against Republican challenger Mitt Romney. With only a few months left until the election, voters are already beginning to form strong opinions about the economy that may be hard to shake before they get into the voting booth.
"The economy is struggling to maintain altitude," said Robert Dye, chief economist at Comerica in Dallas.
Consumers spent at the lowest pace in a year as they throttled back on purchasing autos, which helped drive economic growth in the prior two quarters.
Shoppers are wary of spending in an economy that still has not fully recovered from the financial crisis and the recession in late 2007 through mid-2009, with the nation's unemployment rate at 8.2 percent. That reluctance is reflected in retail sales, which contracted in each of the last three months. In addition, wages have been stagnant for years, undermining consumers' willingness to spend.
The economy needs a growth rate of at least 2.0 to 2.5 percent just to keep the employment rate stable, never mind whittling it down.
The weak growth report, flagged by weak data ranging from employment to manufacturing, may raise expectations of a third round of bond purchases, also known as quantitative easing, by the Fed.
The U.S. central bank has already injected $2.3 trillion into the economy through asset purchases and overnight interest rates are near zero, leaving some economists to worry that the Fed does not have enough tools left in its kit.
No major policy announcement is expected at the Fed's two-day meeting next week, but many economists now say the central bank could move when policymakers gather on September 12-13.
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Last month, the Fed extended a program to re-weight the bonds it already holds toward longer maturities to hold down borrowing costs.
The economy has been hit by worries of deep government spending cuts and higher taxes scheduled to kick in at the start of 2013, as well as troubles from the debt crisis in Europe.
The biggest factor weighing on the recovery is fear that politicians in Washington would be unable to avoid the so-called fiscal cliff at the turn of the year, economists said.
Recent economic data suggest limited scope for growth to bounce back in the third quarter.
Wall Street and Washington watch consumer spending closely because it accounts for more than two-thirds of U.S. economic activity. structures.
Reuters contributed to this report.