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US economy 'has barely budged': 1.3 percent growth in GDP

The GDP grew at an annual rate of only 1.3 percent in the second quarter of 2011, announces the Commerce Department, which also revised first-quarter growth down to 0.4 percent.

By Ron SchererStaff writer / July 29, 2011

President Barack Obama delivers a statement on the debt ceiling talks, from the White House on July 29. In his speech, the president said, 'On a day when we’ve been reminded how fragile the economy already is, [the debt ceiling] is one burden we can lift ourselves.'

Jason Reed/Reuters

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According to the US Commerce Department, the US economy only grew at a 1.3 percent rate in the second quarter – an improvement over the first quarter, now estimated to have experienced only 0.4 percent growth, but a slower pace than many economists had expected.

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Contributing to the economic malaise were a contraction of spending by state and local governments as well as a spending pullback by consumers hammered by rising food and gasoline prices.

As a result of the slow improvement in the economy, many economists are now lowering their outlook for the second half of the year, which had been expected to show more spunk. Without higher growth, business is unlikely to hire more people, which will keep unemployment high, say economists. In addition, if businesses sense the economy is slowing, they may pull back on ordering new equipment and building new factories.

“It is now clear: the economy is even less sturdy than we thought just one day ago,” says Richard DeKaser, economist at the Parthenon Group, a Boston-based consulting company.

The lackluster performance by the economy comes against the backdrop of the Washington debate over increasing the debt ceiling. Some economists are concerned that consumers and businesses are delaying purchases until they see how the impasse will be resolved. Many investors are starting to reduce their stock portfolios, with the Dow Jones Industrial Average off about 500 points in the past week including about another 60 points by noon on Friday.

Some banks, in an effort to conserve capital, are starting to tighten their terms and conditions for loans,says Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla.

In addition, he notes some disruptions taking place in the capital markets, as investors start to pull money out of some money market mutual funds. According to Lipper Analytical, some $32 billion has been withdrawn from the money market funds so far this week.

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