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Economy: Growth sluggish, ranks of jobless remain high



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The sluggish growth rate could make the Federal Reserve more likely to announce some new step after it meets next week. But Paul Dales, senior U.S. economist at Capital Economics, doubts the Fed will act at the July 31-Aug. 1 meeting.

Many economists instead think the Fed will launch another round of bond buying at its September policy meeting. The aim would be to drive long-term interest rates lower and encourage more borrowing and spending.

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In the second quarter, GDP in current dollars rose at an annual rate of $117.6 billion to $15.6 trillion.

Growth was weaker mostly because consumer spending slowed to a growth rate of just 1.5 percent. That was down from 2.4 percent in the first quarter.

Americans bought fewer autos, computers and other long-lasting manufactured goods. But money spent on services, which represents about two-thirds of spending, rose in the April-June quarter.

As they spent less, Americans also saved more. The savings rate reached 4 percent, up from 3.6 percent in the first quarter.

The savings rate reached a low of 1.5 percent in 2005, a year when soaring home prices made consumers feel less need to save. The rate climbed to 5.4 percent in 2008 as the financial crisis and recession squeezed Americans.

Nigel Gault, chief U.S. economist at IHS Global Insight, said consumer spending will likely remain subdued in the second half of the year. He thinks it will grow at or below a 2 percent annual rate.

Gas prices have stopped falling and have even started to rise in recent weeks. And this summer’s severe drought is expected to push food prices up toward the end of the year.

"There is really no reason to see us pulling out of this malaise any time soon," Gault said. "I am not calling for a recession, but I am calling for weak growth."


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The U.S. economy has never been so sluggish this long into a recovery. The Great Recession officially ended in June 2009.

Until a few weeks ago, many economists had been predicting that growth would accelerate in the final six months of the year. They pointed to gains in manufacturing, home and auto sales and lower gas prices.

But threats to the U.S. economy have left consumers too anxious to spend freely. Jobs are tight. Pay isn’t keeping up with inflation. Retail sales fell in June for a third straight month. Manufacturing has weakened in most areas of the country.

Fear is also growing that the economy will fall off a "fiscal cliff" at year’s end. That’s when tax increases and deep spending cuts will take effect unless Congress reaches a budget agreement.

All that is making companies reluctant to expand and hire much.

The Commerce Department also revised its growth estimates for the past three years. Those revisions showed that the economy contracted 3.1 percent in 2009, slightly less than the 3.5 percent previously reported. Growth in 2010 was put at 2.4 percent, down from 3 percent, with growth in 2011 at 1.8 percent instead of 1.7 percent.

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Associated Press Staff Writers Christopher S. Rugaber, Paul Wiseman and Tom Raum contributed to this report.



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