Growth anemic, debt row poses recession risk

Fri Jul 29, 2011 5:35pm EDT
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By Lucia Mutikani

WASHINGTON (Reuters) - The economy stumbled badly in the first half of 2011 and came dangerously close to contracting in the January-March period, raising the risk of a recession if a standoff over the nation's debt does not end quickly.

Output increased at a 1.3 percent annual pace in the second quarter as consumer spending barely rose, the Commerce Department said on Friday. In the first three months of the year, the economy advanced just 0.4 percent, a sharp downward revision from the previously reported 1.9 percent gain.

"The economy essentially came to a grinding halt in the first half of this year," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "We did get side-swiped by some temporary factors which are fading, but it raises some concerns about the sustainability the recovery."

The weaker-than-expected second-quarter reading and downward revisions extending into last year underscored the frail state of the recovery, which economists said could fall off the rails if lawmakers do not raise the nation's $14.3 trillion borrowing limit and avoid a government default.

Consumer spending, which accounts for about 70 percent of U.S. economic activity, decelerated sharply in the second quarter, advancing at only a 0.1 percent rate -- the weakest since the recession ended two years ago.

Stocks on Wall Street fell on the data and the debt impasse on Friday, to record their worst week in a year. Prices for government debt rallied, while the dollar fell broadly.


The Obama administration has said it will run out of borrowing authority on Tuesday and could soon run out of cash, but talks aimed at raising the debt ceiling remain deadlocked.   Continued...

<p>A man stands outside a store advertising that it is going out of business in New York, July 19, 2011. REUTERS/Shannon Stapleton</p>