US economic growth has started showing the signs of weakness, as consumers are cutting back sharply on spending. In the second quarter this year, the economy grew at annual pace of 1.5 percent, a big decline from 2 percent growth rate in the first quarter.
The Commerce Department admitted on Friday, that growth in April-June quarter has been lower than expected, and any financial shock such as spending cuts, tax increase or split of Eurozone can pull the country back into recession. It may prompt Federal Reserve to take appropriate measures to boost the economy. In June, the Federal Reserve lowered its estimate for economic growth in 2012 to 2.4 percent, from 2.9 percent.
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In dollar terms, the GDP increased by $117.6 billion in April-June quarter to $15.6 trillion. Lack of consumer spending is the biggest drag for the economy. Consumer spending alone accounts for about 70% of the economy activities. Spending, which grew at 2.4% in the first quarter, saw an increase of only 1.5 percent in 2nd quarter. The sales of FMGC, computers and autos declined. Money conscious people are now focusing on savings. Saving rates jumped from 3.6 percent in the first quarter, to 4 percent in the second quarter.
A growth rate below 2 percent doesn’t help the labor market, and the unemployment rate stood unchanged at 8.2 percent last month. Employers are skeptical of adding more jobs or investing more money, due to weaker demands in the domestic market. However, there was some good news too, in the report. Home sales continue to help the economic growth. Exports increased 5.3 percent during the second quarter.
Poor economic recovery only increases the pressure on President Barack Obama, who is battling with Mitt Romney for re-election. However, economists don’t think that Congress, the White House, or Federal Reserve will do anything soon to boost the economy.
Despite the reports of weaker economic growth, stock markets surged today as president of ECB pledged to keep the euro united.