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U.S. economists expect even slower growth

WASHINGTON — The economic recovery won't be catching fire any time soon.

Businesses and governments are likely to reduce spending in the second half of the year. Consumers, who drive most economic growth, aren't expected to take up the slack.

The Commerce Department said Friday that the economy grew at an annual rate of 2.7 percent in the first quarter, offering its third and final estimate for the period. It was slower than initially thought because consumers spent less and imports rose faster that previously calculated. Friday's figure is below last month's 3 percent estimate of first-quarter growth.

Gross domestic product, or GDP, measures the value of all goods and services produced in the United States and is considered the best measure of the country's economic health.

Economists anticipate even slower growth ahead as companies bring their stockpiles more in line with sales. Factory output has climbed this year, but it was driven more by businesses replenishing their warehouses after the recession and less by consumer demand.

"The economy is growing, but still at a disappointingly slow pace," said Zach Pandl, an economist at Nomura Securities. Take away businesses restocking their inventories and "you still have a lukewarm recovery," he said.

Other factors could hold back growth. Federal government stimulus spending is expected to fade. The European debt crisis could slow U.S. exports and world trade. And state and local governments are likely to rein in spending and raise taxes as they struggle to close budget gaps.

"This is still the weakest and longest economic recovery in U.S. postwar history," said Paul Dales, U.S. economist with Capital Economics.

High unemployment and tight credit have kept consumers from ramping up their spending as in past recoveries. The housing industry has played a big role after previous recessions. But this time it is slumping and subtracting from economic growth.

Most economists expect the unemployment rate, currently at 9.7 percent, to remain above 9 percent through the end of the year.

The economy has grown for three consecutive quarters after shrinking for four straight during the recession — the longest contraction since World War II.

In normal times, 2.7 percent growth would be considered healthy. But it's relatively weak for a recovery after a steep recession. After the last sharp downturn in the early 1980s, GDP grew at rates of 7 percent to 9 percent for five straight quarters. The department's report is the third of three estimates it makes for each quarter's GDP, the broadest measure of the nation's economic output. The rate declined from earlier reports because consumers spent less than previously estimated, while the nation imported more goods from overseas.

Growth of roughly 3 percent is needed just to generate enough jobs to keep up with increasing population. Many economists say growth needs to reach 5 percent for a full year to lower the jobless rate, by one percentage point.

In the past three quarters, growth has averaged 3.5 percent.

U.S. economists expect even slower growth 06/25/10 [Last modified: Friday, June 25, 2010 9:15pm]
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