December 8, 2023

New Reports Hint Economy Lacks Energy

The sluggish pace of activity was underscored by another report on Friday showing an energy-led rise in wholesale prices last month, but subdued underlying inflation pressures.

The soft data, however, was unlikely to deter the Federal Reserve from cutting its huge bond-buying program as early as next week, analysts said.

“I don’t think that’s a red flag for the Fed. Over all, the data picture is mixed and supports our view that it will be a light taper,” said Thomas Costerg, a United States economist at Standard Chartered Bank in New York.

The Thomson Reuters/University of Michigan index of consumer sentiment fell 5.3 points to 76.8 in early September, the lowest since April. Economists pointed to worries over high interest rates and a possible military strike on Syria.

A separate report from the Commerce Department showed that retail sales rose 0.2 percent last month as Americans bought automobiles and other long-lasting goods like furniture and electronics and appliances.

But those purchases appeared to draw spending power away from other areas, and receipts for clothing, building materials and sporting goods all fell.

It was the fifth consecutive monthly rise in retail sales, which account for about 30 percent of consumer spending. They had gained 0.4 percent in July, and economists polled had expected them to rise 0.4 percent last month.

In a third report, the Labor Department said the Producer Price Index increased 0.3 percent last month after being flat in July.

“Price pressures are not dead, but they are taking a very long and heavy nap,” said Michael Montgomery, a United States economist at IHS Global Insight.

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A Summer of Troubles Saps India’s Sense of Confidence

But a summer of difficulties has dented India’s confidence, and a growing chorus of critics is starting to ask whether India’s rise may take years, and perhaps decades, longer than many had hoped.

“There is a growing sense of desperation out there, particularly among the young,” said Ramachandra Guha, one of India’s leading historians.

Three events last week crystallized those new worries. On Wednesday, one of India’s most advanced submarines, the Sindhurakshak, exploded and sank at its berth in Mumbai, almost certainly killing 18 of the 21 sailors on its night watch.

On Friday, a top Indian general announced that India had killed 28 people in recent weeks in and around the Line of Control in Kashmir as part of the worst fighting between India and Pakistan since a 2003 cease-fire.

Also Friday, the Sensex, the Indian stock index, plunged nearly 4 percent, while the value of the rupee continued to fall, reaching just under 62 rupees per dollar, a record low.

Each event was unrelated to the others, but together they paint a picture of a country that is rapidly losing its swagger. India’s growing economic worries are perhaps its most challenging.

“India is now the sick man of Asia,” said Rajiv Biswas, Asia-Pacific chief economist at the financial information provider IHS Global Insight. “They are in a crisis.”

In part, the problems are age-old: stifling red tape, creaky infrastructure and a seeming inability to push through much-needed changes and investment decisions. For years, investors largely overlooked those problems because of the promise of a market of 1.2 billion people. Money poured into India, allowing it to paper over a chronic deficit in its current account, a measure of foreign trade and investment.

But after more than a decade of largely futile efforts not only to tap into India’s domestic market but also to use the country’s vast employee base to manufacture exports for the rest of Asia, many major foreign companies are beginning to lose patience. And just as they are starting to lose heart, a reviving American economy has led investors to shift funds from emerging-market economies back to the United States.

The Indian government recently loosened restrictions on direct foreign investment, expecting a number of major retailers like Walmart and other companies to come rushing in. The companies have instead stayed away, worried not only by the government’s constant policy changes but also by the widespread and endemic corruption in Indian society.

The government has followed with a series of increasingly desperate policy announcements in recent weeks in hopes of turning things around, including an increase in import duties on gold and silver and attempts to defend the currency without raising interest rates too high.

Then Wednesday night, the government announced measures to restrict the amounts that individuals and local companies could invest overseas without seeking approval. It was an astonishing move in a country where a growing number of companies have global operations and ambitions.

The Indian stock markets were closed Thursday because of the nation’s Independence Day, but shares swooned at Friday’s opening. Many analysts are predicting that the markets will continue to decline.

“I think things will get much worse before they get better,” said Sonal Varma, an India economist at Nomura Securities in Mumbai. “The government is between a rock and a hard place.”

The problem for India, analysts say, is that the country has small and poorly performing manufacturing and mining sectors, which would normally benefit from a weakening currency. Meanwhile, India must buy its oil, much of its coal and other crucial goods like computers in largely dollar-denominated trades that have become nearly 40 percent more expensive over the past two years.

That is helping feed inflation, which jumped in July to an annual rate of 5.79 percent from 4.86 percent in June, far above what analysts had expected.

The Reserve Bank of India, the central bank, has recently responded to the rupee’s weakness by raising interest rates, but those moves have already begun to hurt a huge swath of India’s corporate sector. Growth rates had already slowed to 5 percent in the most recent quarter, and India now has a far harder time meeting its current-account deficit.

Analysts fear that higher inflation, softening growth, a falling currency and waning investor confidence could spin into a vicious cycle that will be difficult to contain.

“There’s a risk of a spiral downward,” said Mr. Biswas, the IHS Global economist. “It will be very hard to break.”

The submarine explosion revealed once again the vast strategic challenges that the Indian military faces and how far behind China it has fallen. India still relies on Russia for more than 60 percent of its defense equipment needs, and its army, air force and navy have vital Russian equipment that is often decades old and of increasingly poor quality.

The Sindhurakshak is one of 10 Russian-made Kilo-class submarines that India has as part of its front-line maritime defenses, but only six of India’s submarines are operational at any given time — far fewer than are needed to protect the nation’s vast coastline.

Indeed, India has fewer than 100 ships, compared with China’s 260. India is the world’s largest weapons importer, but with its economy under stress and foreign currency reserves increasingly precious, that level of purchases will be increasingly hard to sustain.

The country’s efforts to build its own weapons have largely been disastrous, and a growing number of corruption scandals have tainted its foreign purchases, including a recent deal to buy helicopters from Italy.

Unable to build or buy, India is becoming dangerously short of vital defense equipment, analysts say.

Meanwhile, the country’s bitter rivalry with Pakistan continues. Many analysts say that India is unlikely to achieve prominence on the world stage until it reaches some sort of resolution with Pakistan of disputes that have lasted for decades over Kashmir and other issues.

Gardiner Harris reported from New Delhi, and Bettina Wassener from Hong Kong.

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Rise of Inflation Eases in Britain

LONDON — Consumer prices in Britain increased at a slower rate in July after hitting a 14-month high in June, relieving some pressure on households but remaining well above the central bank’s inflation target.

Inflation slowed to 2.8 percent in July from 2.9 percent in June, partly because clothing stores discounted prices and airfares were lower, the Office for National Statistics said Tuesday. A slowdown in consumer price increases would help households, which have been squeezed by more expensive utility costs and other living expenses just as many employees saw their salaries cut or frozen.

The Bank of England, which has its own inflation target of 2 percent, has been predicting that consumer price increases would remain at the current level before starting to ease toward the end of this year. But some economists warned that higher oil prices and a strengthening housing market might help to push prices up much further in the short-term.

Howard Archer, an economist at IHS Global Insight, wrote in a note to clients that consumer price inflation “might touch 3 percent in the near term, but it should start heading gradually down towards the end of the year.” He added, “Much will clearly depend on oil price developments.”

Britain’s economy has started to show signs of recovery after narrowly avoiding a triple-dip recession at the beginning of this year. Consumer confidence has been improving and the construction and manufacturing industries have returned to growth. The values of houses have been increasing, not just in London but across the country.

Still, the Bank of England’s new governor, Mark J. Carney, warned last week that the recovery would be very slow and that headwinds persisted. To help speed up the recovery, Mr. Carney linked future decisions on interest rates, which are currently at a record low of 0.5 percent, to unemployment. He said that the Bank of England planned to keep interest rates unchanged until unemployment falls to 7 percent from 7.8 percent at the moment.

The plan, which is similar to steps taken by the United States Federal Reserve, is expected to eliminate some uncertainty for consumers and companies about the future cost of borrowing. But Mr. Carney also said the central bank was sticking to its main mandate of bringing down consumer price inflation. Unlike most of its neighbors, Britain continues to be plagued by relatively high inflation that is linked to several factors, including oil and gas prices.

Cathy Jamieson, a member of Parliament for the opposition Labour Party, said that despite the slowdown in inflation in July, “prices continue to rise faster than wages as the Tory-led government’s cost of living crisis continues.”

Some lawmakers and economists have started to warn that recent increases in the prices of homes could make them even more unaffordable for many. In a separate report Tuesday, the statistical office said house-price inflation rose annually to 3.1 percent in June compared to 2.9 percent in May, bringing prices to the highest level in five years.

The values of homes rose fastest in London, an 8.1 percent increase, helped by buyers from Asia and Europe looking for a haven for their investments.

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China’s G.D.P. Growth Slows as Government Changes Gears

HONG KONG — China’s new tough-love approach to overhauling its giant economy showed through in lackluster economic data released on Monday, underlining just how rapidly growth in the once-sizzling economy has cooled.

China’s economy grew 7.5 percent in the second quarter of this year, compared with the same period a year earlier, the National Bureau of Statistics reported. The figure was in line with economists’ expectations, but represented a progressive slowdown from 7.7 percent gross domestic product growth in the first quarter and 7.9 percent in the final three months of 2012.

Industrial output data for June, also released Monday, came in weaker than forecast, with an increase of 8.9 percent from a year earlier — down from 9.2 percent in May. The growth in fixed asset investment in urban areas, another key measure of economic activity, also slowed slightly during the first six months of the year.

On the upside, however, retail sales came in better than expected, rising 13.3 percent in June from a year earlier. The May reading was 12.9 percent.

The slowdown in the world’s second-largest economy after the United States has left some analysts concerned that China could lose yet more steam in the coming quarters, denting the ravenous demand for goods that has been a key support to global growth at a time when Europe and the United States are struggling to grow.

Xianfang Ren, an economist at IHS Global Insight in Beijing, wrote in a research note on Monday that China’s growth was “at risk of stalling,” and that “the downside risk for growth has become much more elevated now than a few months ago.”

Increasing signs that China is faltering have prompted a number of economists to downgrade their forecasts for the country. Zhang Zhiwei, China economist at Nomura, lowered his growth forecast for 2014 from 7.5 percent to 6.9 percent following Monday’s data release (he continues to project 7.5 percent growth for this year).

Officials in Beijing, however, continued to signal on Monday that they were comfortable with the slowdown, which comes as the country is preparing for a major structural overhaul designed to put future expansion on a more sustainable and balanced footing albeit at the price of more moderate growth.

Sheng Laiyun, the spokesman for the statistics bureau, said on Monday that the latest data were within the bounds of official expectations, though he acknowledged headwinds were buffeting the economy.

“Viewed over all, national economic performance in the first half of the year was generally stable, and the main indicators remain within the reasonable bounds for the annual forecast,” Mr. Sheng said during a news conference broadcast live on Chinese television. “But economic conditions are still complex and changeable.”

To a large degree, China’s recent cooling has been engineered by the authorities in Beijing, who are trying to steer the economy from an increasingly outdated growth model toward expansion that is more productive and sustainable.

While this slowdown has been happening for more than two years, a flood of comments from policy makers in recent months has made it increasingly clear that the new leadership that took the helm in March is serious about tolerating significantly slower growth for the foreseeable future in return for the longer-term gains of a more balanced economy.

Evidence of China’s cooling could prompt some limited policy shifts aimed at supporting especially pressured parts of the economy, analysts said. On Monday, for example, the governor of China’s central bank, Zhou Xiaochuan, and other officials said the government would extend more support to small businesses as part of its efforts to ignite new sources of growth.

Speaking at a conference about small business policy, Mr. Zhou outlined the challenges confronting policy makers.

“Currently, domestic and external economic conditions are unusually complicated, there are quite a number of destabilizing and uncertain factors, and the downward pressures on the economy are quite considerable,” Mr. Zhou said, according to a transcript of his comments on the Chinese government’s main Web site.

Still, few analysts expect the government to revert to heavy-hitting stimulus measures of the kind implemented after the financial crisis.

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Economix Blog: A New Sign of a Swoon

Don’t be fooled by the headline number – there was more evidence of a spring swoon in new government data released Tuesday.

While overall industrial production rose 0.4 percent, that increase was caused by a big 5.3 percent jump in production at utilities because of the cold weather in March.

Manufacturing output, which is a more telling indicator than the headline number, actually dropped by 0.1 percent.

Many analysts, like Barclays, were looking for manufacturing output to rise slightly last month, not fall, and the bank said it was one more sign the economy was entering a weak patch after stronger growth earlier in the year.

“This adds to the picture of a softening of activity at the end of Q1, relative to the start of the year, with weaker March data now seen across retail sales, employment and output,” Barclays said in a note. “Alongside a likely softening of household sector demand (reflecting a lagged response to January tax hikes) this leads us to expect softer output growth in Q2 relative to Q1.”

Another firm, IHS Global Insight, was similarly downbeat. Still, IHS noted that auto production was one bright spot amid the overall gloom.

“As expected, motor vehicle production increased again (+2.9%) and continues to be a bright spot in the economy, even as consumers face many headwinds,” IHS said. “Vehicle production should continue to lead manufacturing higher over the coming months.”

If the economy does indeed slow, as is widely expected, many economists say the cause will be fiscal austerity in Washington. Besides the payroll tax increase at the beginning of January, experts are watching the fallout from the automatic cuts in government spending recently imposed by Congress.

More information about the broad state of the economy will be out Wednesday, when the Federal Reserve releases its Beige Book survey of economic conditions across the country.

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Jobless Rate Down, Stocks Up, Washington Is Unmoved

Even as analysts hailed a better-than-expected jobs report on Friday that pointed to an acceleration in growth, they warned that stronger employment gains are being put at risk by sequestration, the automatic spending cuts being imposed by the federal government.

“They’re doing their best to get in the way,” Nigel Gault, chief United States economist at IHS Global Insight, said of lawmakers and other officials. “But the good news is that the economy is carrying plenty of momentum going into sequestration.”

The Labor Department reported that the economy added 236,000 jobs in February as the unemployment rate sank to 7.7 percent, down from 7.9 percent in January and the lowest level since December 2008.

Wall Street expected no more than 165,000 additional jobs in February, and the surprise helped lift the Dow Jones industrial average to another new nominal record, its fourth for the week. It closed at 14,397.07.

But many experts said if it weren’t for political gridlock in Washington, which led to the automatic spending reductions on March 1, the performance of the job market and the broader economy would be even more robust in the months ahead.

“It does suggest a bit more cushion heading into the spring, when we will see the bulk of the impact from the sequester and fiscal pullback,” said Michelle Meyer, senior United States economist at Bank of America Merrill Lynch. “This was a good report. It’s hard to poke holes in it. But we think we’ll see some slowdown in April and May because of the sequester.”

Mr. Gault estimated that the economy would achieve a 1.5 percent growth rate in the first half of 2013. Without the spending cuts and a rise in Social Security taxes that went into effect in January, he said, the economy would probably advance at double that pace.

As a result, he and other economists expected that the pace of job creation would slow, leaving the unemployment rate not much lower than where it is now. If jobs were added at February’s pace for the rest of 2013, the unemployment rate would crack the closely watched 7 percent level by the end of the year. Instead, Ms. Meyer predicted that unemployment would remain near 7.5 percent.

Macroeconomic Advisers, an independent forecasting firm, predicted that the federal spending cuts would cost about 700,000 jobs this year, with most of the damage occurring in the second and third quarters.

While the economy is expected to continue to add enough jobs to keep the jobless rate from rising significantly, estimates like these suggest that without the drag from Washington the labor market might have added, on average, a robust 300,000 jobs a month or so.

The data for February, adjusted for normal seasonal variations, don’t reflect the federal cuts, which are expected to affect not just government jobs but also industries that rely on public spending.

Public sector employment continued a long decline, with the number of state and local government workers falling by 10,000 in February. Over all, there are now 366,000 fewer government workers in the United States than there were two years ago.

On Friday, the White House was quick to point to the new data as a sign that the economy is strengthening even as it warned of the impact from the squeeze on spending.

“The recovery is gaining traction,” said Alan Krueger, chairman of the White House Council of Economic Advisers. But the sequestration, he said, “is an unnecessary headwind. It’s something that will slow the expansion. We’re poised for stronger growth if we don’t get in the way with misguided fiscal policy.”

In some respects, the rest of the year is shaping up as a tug of war between a strengthening private sector and federal austerity.

Private hiring last month was broad-based, with healthy job gains in several areas, including business services and manufacturing.

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Stocks and Bonds: Daily Stock Market Activity

Home prices in the United States fell by more than 1 percent in October, a survey showed on Tuesday, but the low prices have attracted investors to some of the cities where they have declined the most.

The private Standard Poor’s/Case-Shiller index, a closely watched measure of home prices, was down 1.2 percent from September, according to nonseasonally adjusted data tracking 20 cities.

Nineteen of the cities experienced price declines, with prices reaching new lows in Atlanta since its 2007 peak and in Las Vegas, from its 2006 peak, S. P. said. Only Phoenix posted a gain, with a 0.3 percent rise, the Case-Shiller data showed.

“Atlanta and the Midwest are regions that really stand out in terms of recent relative weakness,” said David M. Blitzer, the chairman of the index committee at S. P.

Another report, however, pointed to some recovery and helped ease the sting of the report on home prices. The Conference Board’s consumer confidence index rose to 64.5 in December from 55.2 in November, reaching its highest level since April. Analysts had forecast a level of 58.9.

“Consumer optimism is on the rise as job prospects improve, and the summer doldrums seem to be behind most Americans,” said Chris G. Christopher Jr., the United States economist with IHS Global Insight. “In November, the unemployment rate fell to 8.6 percent, and gasoline prices are falling, offering some relief to consumer mood and spending.”

But neither the discouraging home-price data nor the sharp gain in confidence appeared to have much impact on the stock market in the United States, which is winding down the year with light trading. The indexes hovered between gains and losses most of the day.

The Dow Jones industrial average was down about 0.02 percent, or 2.65 points, to 12,291.35. The Standard Poor’s 500-stock index rose less than a point to 1,265.43, while the Nasdaq was up 0.3 percent at 2,625.20.

Both the S. P. and the Dow are on track to finish 2011 in positive territory, despite the lackluster investor sentiment and volatility that uneven domestic economic data and concerns over the euro zone sovereign debt crisis stirred up in the past year. The benchmark 10-year Treasury note rose 6/32 to 100. The yield fell to 2 percent, from 2.02 percent on Friday. Markets were closed on Monday.

The housing sector has been destabilized since the financial crisis of 2008, hit by foreclosures, a glut of supply, weak demand, and a struggling job market — all of which is making for a lackluster recovery.

Patrick Newport, an analyst with IHS Global Insight, forecast that those factors could force down prices another 5 percent to 10 percent next year.

“Our forecast is they will hit bottom in the second half of 2012,” said Mr. Newport. “We still will have a lot of foreclosures. That is still going to stay high for another several years.”

The Case-Shiller report on housing prices for October was worse than expected, exceeding analysts’ forecasts for a 0.4 percent drop for that month, compared with the seasonally adjusted 0.6 percent monthly decline in the 20-city index. The index was down 3.4 percent from a year earlier, with Atlanta recording the worst annualized rate, dropping by 11.7 percent.

However, housing statistics from other sources since the October survey showed relatively healthy activity, Mr. Blitzer wrote in the S. P. report.

“I think going forward we are going to be bumping along the bottom,” he said in a telephone interview. “I do not see this as getting ready for a big plunge.”

The National Association of Realtors said last week that sales of single-family houses, town houses, condos and co-ops in November rose to 4.42 million, their highest level in 10 months, according to its latest revised data. But there were also signs that buyers were still nervous and lenders were being cautious about approving loans — the association said that a third of all contracts signed in November did not lead to closed sales. Data on starts for single-family housing also rose, Mr. Blitzer also noted.

Robin Lemon, a realtor with the AtlantaPros Team, said parts of Atlanta have been particularly hard-hit by the recession, affecting companies and in turn, nearby housing.

“Obviously there are some pockets that are not seeing a decrease in home values,” said Ms. Lemon, who was in between showing condos to a client. “The hard hit ones are those areas where the businesses have suffered. South Atlanta has been hit really, really hard.”

She and other experts in the business said that the low prices were attracting investors who were taking advantage of low rates on mortgages.

“There are definitely those folks who are taking advantage of the market and buyers are definitely out there, but they do not want to pay full price and they expect a 10 percent price reduction if it is a foreclosure,” she said.

In Nevada, investors were snapping up single-family homes and restoring them, said Paul Bell, the president of the Greater Las Vegas Association of Realtors. The association said on its Web site that the median price of single-family homes sold in November was $125,000, up 3.3 percent from $121,000 in October.

“We are going through a lot of current inventory that is not in very good condition,” Mr. Bell said in a telephone interview. “We are seeing a big increase in that type of activity, and they are paying cash and going in and doing a first-class job in getting these single-family homes restored. Investors can lease those homes pretty quickly and get a cash flow until the market is ready for them.”

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Economix Blog: Long Road Ahead for Most American States

Michigan, Nevada and Rhode Island will probably have to wait another six years before they are back to the number of jobs they had before the recession struck, according to economists at IHS Global Insight.

These analysts have projected when each state will likely return to its past peak employment, as shown in the map below:

DESCRIPTIONSource: IHS Global Insight.

Across the country, there are 4.7 percent fewer jobs today than there were when the recession began in December 2007. And remember that the United States population has grown in the last five years, so if the economy were healthy there would be more jobs today than there were then. This analysis only models when we’ll be back to square one.

Only Alaska, North Dakota and the District of Columbia have recovered the jobs they lost during the recession. Those places have actually surpassed their previous employment peaks as well.

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Inflation Steady in Euro Area, but Number of Jobless Grows

The European Union statistics office Eurostat said that inflation in the 17 countries using the euro was 2.5 percent year-on-year in August, the same as in July, as expected by economists.

The E.C.B. wants to keep inflation below but close to 2 percent, and economists had been expecting the bank to raise interest rates a third time this year to 1.75 percent from 1.5 percent to stem price pressures.

Eurostat also reported that unemployment was 10 percent in July, unchanged from an upwardly revised June rate, which was initially reported at 9.9 percent. But the number of unemployed in the euro zone rose by 61,000 in July against June to 15.757 million.

“The latest data and surveys fuel belief that the E.C.B.’s ultimate next move may actually be to trim interest rates,” said Howard Archer, economist at IHS Global Insight. But, he added, the central bank probably will want to see “sustained” economic weakness to “do a U-turn.”

Aline Schuiling, an economist at ABN AMRO, said the stabilization was likely due to a decline in energy price inflation balancing a rise in the core inflation rate.

“Looking forward, we expect inflation to remain well above the E.C.B.’s price stability goal this year, before falling below this level next year, as energy price inflation drops back noticeably while the rise in the core rate is restrained by the moderate level of economic growth,” she said.

The E.C.B. president Jean-Claude Trichet said on Monday that the bank was reviewing the risks to price stability, suggesting it could tone down its view on inflation pressures.

In its last staff projections, released in June, the E.C.B. forecast euro zone inflation in a range of 2.5-2.7 percent this year and 1.1-2.3 percent in 2012.

The rise in the number of unemployed is likely to slow down wage growth and therefore help keep down underlying inflation, said Jennifer McKeown, European Economist at Capital Economics.

“These data should help to convince the E.C.B. that its earlier fears of a sharp rise in inflation were unwarranted, perhaps opening the door to interest rate cuts in the not too distant future,” she said.

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Recovery Still Slow as New Data Show Little Growth

The country’s gross domestic product, a broad measure of the goods and services produced across the economy, grew at an annual rate of 1.3 percent in the second quarter, after having grown at an annual rate of 0.4 percent in the first quarter — a number that itself was revised sharply down from earlier estimates of 1.9 percent . Both figures were well below economists’ expectations.

Data revisions going back to 2003 also showed that the 2007-2009 recession was deeper, and the recovery to date weaker, than originally estimated. Indeed, the latest figures show that the nation’s economy is actually smaller than it was in 2007, when the Great Recession officially began.

“The word for this report is ‘shocking,’ ” said John Ryding, chief economist at RDQ Economics. “With slow growth, higher inflation and almost no consumer spending growth, it is very tough to find good news.”

The latest figures come as Congress is debating how to put the nation on a more sustainable fiscal path, with measures that some economists worry could further slow the recovery and even throw the economy back into recession. Even in the absence of further austerity measures, some of the government’s stimulative policies, such as the payroll tax cut, are phasing out, and state and local governments are slashing spending dramatically.

Such fiscal retrenchment was already expected to be a drag on growth in the coming year; the Commerce Department’s report only magnifies those concerns.

“There’s nothing that you can look at here that is signaling some revival in growth in the second half of the year, and in fact we may see another catastrophically weak quarter next quarter if things go wrong next week,” said Nigel Gault, chief United States economist at IHS Global Insight. By “things going wrong,” he said he means “if Congress actually starts implementing a massive contraction by suddenly cutting government spending immediately,” as many Republican representatives hope to do.

Prolonging the continuing talks in Washington to raise the amount of money the United States can borrow could also damage prospects for growth in the third quarter, he said, because the resulting uncertainty and threat of federal default are “surely paralyzing businesses and consumers,” making them reluctant to make the big purchases that keep the economy humming.

Usually, a sharp recession is followed by a sharp recovery, meaning the recovery growth rate is far faster than the long-term average growth rate; last quarter, though, output grew at only about one-third of the average rate seen in the 60 years preceding the Great Recession. As a result, the country’s output is far below its potential.

Particularly distressing to economists is that consumer spending — which, alongside housing, usually leads the way in a recovery — has been extraordinarily weak in recent quarters. Inflation-adjusted consumer spending in the second quarter barely budged, increasing just 0.1 percent, the Commerce Department report showed.

“People are spending more, but that spending is being absorbed in higher prices, not in buying more stuff,” Mr. Ryding said.

Even the brightest parts of the report were seen as bittersweet. For example, motor vehicle output fell much less than was predicted after the natural disasters in Japan disrupted supply chains. But that means there will likely be a less dramatic bounce back in autos in the coming months, which economists were counting on to raise growth rates later this year.

The economy’s slow growth rate is largely responsible for stubbornly high joblessness across the country, economists say. As of June, 14 million Americans were actively looking for work, and the average duration of unemployment has been reaching record highs month after month. Businesses are sitting on a lot of cash, but are still reluctant to hire because there is so much uncertainty about the future of the economy and whether they will continue to have a steady flow of customers.

Slow economic growth takes not only a human toll, but a fiscal one as well. Tepid output increases mean slow growth in the tax revenue needed to pay down the nation’s debt.

Washington, therefore, has a delicate balancing act in its current debt ceiling debates. Given the unsustainable debt trajectory that the economy is on — primarily because of the country’s growing health care obligations — Congress needs to impose greater fiscal discipline. But imposing too much too soon, or being too focused on the wrong types of spending cuts, could be self-defeating by weakening growth so greatly that tax revenue falls and requires the country to borrow even more.  

Given inflation concerns, it also seemed unlikely that the Federal Reserve will swoop in with another round of monetary easing to goose growth.

“There’s not going to be additional monetary stimulus, and it’s hard to imagine any fiscal stimulus given the current discussion in Washington,” Mr. Ryding said. “So what’s going to get us out of this? The inevitable conclusion is time, and that’s not very satisfactory.”

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