The economy lost momentum in the spring and probably is in for a spell of somewhat sluggish growth ahead, which could weigh on voters when they go to the polls in November.
The latest snapshot that the Commerce Department provided of the economy Wednesday showed that economic activity grew at just a 2.9 percent annual rate during the April-to-June quarter.
Although that was a slight improvement over the government’s first estimate of a 2.5 percent growth rate, it nevertheless provided vivid evidence of just how much momentum the economy has lost since last winter.
In the January-to-March quarter, the economy had grown at a brisk 5.6 percent pace, the fastest spurt in 2½ years.
The main culprits in the spring slowdown: belt-tightening by consumers and businesses, the fallout from high energy prices and a cooling of the once-sizzling housing market.
Economic growth in the second half of this year is expected to stay subdued, at a pace of around 2.5 percent to 3 percent, according to some analysts’ projections. Economists hope the soft spell doesn’t morph into a more dangerous slowdown.
Voters’ perceptions of the economy’s health may influence their choices at the polls.
“Economic conditions are the most enduring variable in congressional elections,” said Ross Baker, a political science professor at Rutgers University.
“Wars come and go. Energy crises come and go. Environmental questions sometimes recede in the background and sometimes are prominent. But at all times, the state of the economy is important,” he said. “It is not just the numbers — it is how people feel about the economy. It is one of these breakfast table, visceral issues in which you got hundreds of millions of Americans thinking about whether they are better off or worse off than they have been.”
President Bush and his fellow Republicans believe Americans are mostly better off. Democratic rivals disagreed.
Commerce Secretary Carlos Gutierrez said the president’s “strong track record on the economy has helped many more families live the American dream.”
But Sen. Jack Reed, D-R.I., worried that a sharper economic slowdown could jack up the unemployment rate, now at a five-month high of 4.8 percent. “Economic growth is starting to slow even before most Americans have received any of the benefits of this recovery,” he said.
Bush has been touting his policies but is getting relatively low marks from the public for his economic stewardship. Sixty-one percent disapprove of the president’s handling of the economy, while just 37 percent approve, according to an AP-Ipsos poll in early August.
How economic conditions factor into voters’ political decisions will depend on where they stand in the economy.
For people who are feeling pinched or living in economically hurting areas, they will be tough on incumbents, Baker predicted. Those who are prospering, however, may be more inclined to give their House and Senate members another term, he said.
The 2.9 percent growth rate logged in the second quarter was the slowest since the final quarter of 2005, when the economy, reeling from fallout from the Gulf Coast hurricanes, expanded at a pace of only 1.8 percent.
Even though the economy slowed, inflation moved higher.
An inflation gauge closely watched by the Federal Reserve showed that core prices — excluding food and energy — advanced at a rate of 2.8 percent in the second quarter, up from a 2.1 percent pace in the first quarter.
The second quarter’s increase matched that seen in the first quarter of 2001 and hasn’t been higher since the third quarter of 1994 when this inflation measure rose at a 3.2 percent pace.
With the economy slowing, the Federal Reserve earlier this month halted a rate-raising campaign that lasted for more than two years. The decision was a “close call,” minutes of the meeting revealed.
The Fed will meet twice — in September and again in October — before the November elections. Policy-makers’ actions could mean more breathing room for borrowers or more rate pain.
Some economists believe rates will be left alone again when the Fed meets next on Sept. 20. Others, however, think a rate increase will be needed to keep inflation in check.
Fed policy-makers haven’t ruled out another rate increase but are hoping that slower economic growth will eventually lessen inflation pressures.
Stuart Hoffman, chief economist at PNC Financial Services Group, said Wednesday’s report shows the “shifting tides of the U.S. economy.”