The economy expanded at a meager 1.3 percent annual rate in the spring after scarcely growing at all in the first three months of the year, the Commerce Department said July 29.
The combined growth for the first six months of the year was the weakest since the recession ended two years ago. The government revised the January-March figures to show just 0.4 percent growth, down sharply from its previous estimate of 1.9 percent.
The data was much worse than economists expected and caused many of them to lower their growth forecasts for the rest of this year.
“”This is not a death sentence for the recovery, but it does raise some concerns,” said Carl Riccadonna, an economist at Deutsche Bank. He said the current level of growth is too weak to keep the unemployment rate from rising.
High gas prices and scant income gains have forced Americans to pull back sharply on spending. Consumer spending only increased 0.1 percent in the April-June quarter, the smallest gain in two years. Government spending fell for the third straight quarter.
Stocks dropped in early trading, then regained some lost ground. The Dow Jones industrial average fell 56 points, and broader indexes also declined.
The sharp slowdown means the economy will likely grow this year at a weaker pace than last year, when it expanded by 3 percent.
Nariman Behravesh, chief economist at IHS, said the economy will likely expand less than 2 percent in the July-September period. That’s down from the firm’s previous estimate of at least 2.5 percent.
The weaker data will also add pressure to already-tense negotiations between President Barack Obama and lawmakers over increasing the debt limit. Any deal will likely include deep cuts in government spending. That could slow growth further in the short term.
But if Congress fails to raise the debt limit and the government defaults, financial markets could fall and interest rates could rise.
Obama cited the dismal growth figures Friday as a reason for lawmakers to reach a solution.
“On a day when we’ve been reminded how fragile the economy is, this is a burden we can lift ourselves,” Obama said.