US economy grew at 2.5 pct rate in spring

[September 27, 2013]  WASHINGTON (AP) -- The U.S. economy grew at a 2.5 percent annual rate from April through June, an improvement from the first three months of the year. But economists are worried that growth may now be slowing.

The Commerce Department said Thursday that its final look at economic growth in the spring was unchanged from a prior estimate made last month.

However, the components of growth were altered slightly.

Businesses added a bit less to their stockpiles and exports did not grow as fast as previously thought. These downward revisions were balanced by slightly stronger spending by state and local governments.

Many analysts believe growth is slowing to a sluggish rate at or below 2 percent in the current quarter. Economists had initially hoped growth would improve in the second half of the year.

If economists are correct that economic activity slowed this summer, it would mark the third quarter in the last four that growth rates have been 2 percent or lower. Growth in the fourth quarter of 2012 nearly stalled out at a barely discernible 0.1 percent rate and then improved slightly to 1.1 percent growth in the January-March quarter.

The government initially estimated activity in the April-June quarter at a lackluster 1.7 percent but a big narrowing of the trade deficit reflecting stronger export sales overseas helped boost growth to 2.5 percent in the government's second look.

The 2.5 percent figure held steady in the government's third and final look at the gross domestic product for the spring quarter. The GDP is the economy's total output of goods and services.

Economists had initially thought that growth would accelerate in the second half of the year behind steady hiring and fading impact from government spending cuts and higher taxes.

But early activity for the quarter has been discouraging. Consumers spent more cautiously in July as their income barely increased. The government spending cuts have weighed on defense spending and business investment. And higher mortgage rates now threaten to slow a housing recovery that had been a solid contributor to growth in the first half of the year.

Even the job gains from earlier in the year appear to be slowing. Employers have added an average of just 155,000 jobs a month since April, down from an average of 205,000 for the first four months of the year.

Some economists worry that growth remains too weak to accelerate hiring, boost pay and encourage Americans to spend more. Consumer spending drives roughly 70 percent of economic activity.

Mortgage rates have risen more than a full percentage point since May, after Chairman Ben Bernanke indicated the Federal Reserve might slow its $85-billion-a-month in bond purchases later this year.

But the Fed surprised markets last week by not reducing the bond purchases at its September meeting. The decision was made after the Fed scaled back its economic growth estimate for this year and next.

The Fed cited higher interest rates as a key reason it was less optimistic. And Bernanke warned during a news conference after the meeting that a looming government shutdown and failure by Congress to raise the nation's borrowing limit could further weaken the fragile economy.

Analysts are still hopeful that growth will pick up in 2014. In its revised forecast, the Fed last week projected that the economy would grow roughly 3 percent next year, up from around 2 percent to 2.3 percent this year.

[Associated Press; By MARTIN CRUTSINGER]

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