US growth slows fueling recovery fears

US economic growth slowed dramatically in the second quarter, the government said Friday, stoking fears that the recovery is losing steam and fueling a fierce political debate over how to respond.

Gross domestic product (GDP) growth fell back sharply to 2.4 percent in the second quarter, the Commerce Department said, slamming the brakes on an already tepid rebound and painting a bleak picture of the road ahead.

“The post-recession rebound is history,” said Bart van Ark, chief economist for The Conference Board, a leading business research group.

In the first quarter, growth hit 3.7 percent, up substantially from the 2.7 percent previously reported by government.

Amid weak consumer spending and a widening trade gap, few took solace from fresh data that appeared to confirm the US recession has ended and only marginally failed to meet analysts’ expectations of 2.5 percent growth.

President Barack Obama admitted more work needs to be done, but stressed the economy was on the right path, pointing to four consecutive quarters of growth.

“Our economy is growing again instead of shrinking. And that’s a welcome sign compared to where we were,” he said in Detroit.

“But we’ve got to keep on increasing that rate of growth and keep adding jobs so we can keep moving forward,” he said.

Revisions to previous GDP data Friday showed just how much work is needed, with negative growth reaching a whopping 6.8 percent in the final quarter of 2008.

“The recession was even worse than previously thought,” said Martin Regalia, chief economist for the US Chamber of Commerce, but he said Obama had not succeeded in righting the course.

“These data are a clear indication that the policies to date have not produced sufficiently strong growth,” he said.

Detailed figures for the second quarter showed much of the slowdown came from businesses reining in inventory spending, which had grown rapidly in the wake of the financial crisis.

Increased imports — which are subtracted from the GDP figure, as that money flows abroad — also played a strong role.

Americans bought more, but that spending was tilted toward foreign goods and services.

“Purchases by US residents of goods and services wherever produced — increased 5.1 percent in the second quarter, compared with an increase of 3.9 percent in the first,” the Commerce Department said.

“Imports of goods and services increased 28.8 percent, compared with an increase of 11.2 percent,” in the first quarter, it said.

Friday’s data fueled a fierce debate about whether the government needs to again jump start the economy, and how best that could be done.

Obama has clashed with Republicans over the need for government to help the ailing economy, making spending one of the most fiercely fought political battles in the US capital.

Obama’s critics accuse the president of putting Americans’ futures at risk by causing US debt to balloon through ineffective stimulus spending.

In Detroit, Obama touted a 64-billion-dollar bailout that kept the Motor City’s automakers afloat, promoting it as the type of “tough decision” needed to avoid economic depression.

The White House claims one million auto jobs were saved by Obama’s actions, and GM and Chrysler have returned to profit.

Businesses offered a possible bright spot in the Commerce Department’s report, as their investment increased 17 percent in the second quarter, compared with an increase of 7.8 percent in the first.

“Business investment was up substantially,” said Stephen Gallagher of Societe Generale, sounding a note of caution.

“Stronger profits are behind the business investment, but unfortunately, these profits are not sparking as much employment growth.”

According to economist Peter Morici, American consumers will have to start spending again if the recovery is to gain traction.

“Unless spending picks up… once businesses stop piling up unsold goods, layoffs will outnumber hires, unemployment will rise with a vengeance, and the economy will head into a second dip.”