Growth in U.S. slows as consumers restrain spending

July 28, 2012 – WASHINGTON – The world’s largest economy cooled in the second quarter as limited job growth prompted Americans to curb spending while state and local governments cut back. Gross domestic product, the value of all goods and services produced, rose at a 1.5 percent annual rate after a revised 2 percent gain in the prior quarter, Commerce Department data showed today in Washington. Household purchases, which account for about 70 percent of GDP, grew at the slowest pace in a year. Europe’s debt crisis and looming U.S. tax changes threaten to keep the expansion in check and are hurting sales at companies from United Parcel Service Inc. (UPS) to Procter & Gamble Co. (PG) Federal Reserve policy makers, led by Chairman Ben S. Bernanke, meet next week to discuss whether further measures are needed to boost growth and push down an unemployment rate that’s been stuck above 8 percent for more than three years. “We’re not going to bust out of this moderate-growth recovery we’ve been in for quite some time,” said Dean Maki, chief U.S. economist at Barclays Capital in New York, who correctly forecast the GDP gain. “Growth is slow but not fragile, and there may be a modest pickup in the second half.” Stocks rose on speculation the European Central Bank will buy bonds to help lower borrowing costs and preserve the euro. The Standard & Poor’s 500 Index climbed 1.9 percent to 1,385.97 at the close in New York. The yield on the benchmark 10-year Treasury note increased to 1.54 percent from 1.44 percent late yesterday. “The economy remains on a moderate expansion path,” said Chris Rupkey, chief financial economist at the Bank of Tokyo- Mitsubishi UFJ Ltd. in New York, predicting growth will benefit from a decline in gasoline prices and signs the European crisis may ease. The GDP report leaves the door open for President Barack Obama to win an election contest dominated by economic concerns and shaping up as one of the closest in decades. “This sort of slow-growth region puts it in the too-close- to-call category,” said Alan Abramowitz, a political science professor at Emory University in Atlanta. –Bloomberg