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The United States economy has slowed considerably this year from a year ago, according to a report from the Commerce Department released on Friday.

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 still 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 economy and even throw it back into recession. Even in the absence of further austerity measures, some of the government’s current 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 and the Washington debt talks only magnify 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, as businesses and families wait to make big purchases until the threat of federal default passes.

“Even if everything gets done, there is still a big hit coming from uncertainty,” said Paul Dales, a senior United States economist at Capital Economics. “Companies have probably put projects on hold and postponed hiring.”

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 slower 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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Source:  The New York Times

THE last year and a half has brought a rapid sequence of reversals in the Obama administration’s policy toward oil and gas exploration on public lands and in United States waters.

Since the beginning of 2010, Washington has caromed from a restrictive approach to drilling to a permissive policy closely mirroring that of the Bush administration to a near-total shutdown of offshore drilling after the Deepwater Horizon blowout in the Gulf of Mexico. After that fatal accident, the administration decreed a deepwater drilling moratorium, lifted it six months later, then took five more months before beginning to issue drilling permits.

Throughout that time, the American public’s attitudes toward domestic oil and gas development have been remarkably consistent: Americans are in favor of it, though Democrats and those on the coasts are much less likely than Republicans and those in the South and Southwest to be supportive.

National support for offshore drilling and for domestic oil and gas development generally dipped for a time after the BP disaster — from a strong majority to a bare majority — but quickly rebounded.

A Gallup poll taken immediately after the gulf spill showed that 50 percent of Americans supported offshore drilling while 46 percent opposed it. By March of this year, public support had risen to 60 percent versus 37 percent.

The administration’s offshore drilling policy, like its fervor for domestic production more generally, has gone through rapid changes. In March 2010, President Obama announced that the United States would make vast tracts of the Gulf of Mexico and the Atlantic and Arctic oceans available for leasing by oil and gas companies. After the BP spill began on April 20, 2010, he declared those areas off-limits for at least five years. Then, last month, the president announced that he would permit accelerated development in Alaska, the gulf and along parts of the Atlantic coast.

Administration officials defend the policy changes as reasonable responses to changed circumstances.

Mr. Obama came to office as a proponent of increased domestic oil and gas development, as part of a broader strategy to reduce oil imports. Accordingly, they said, he took steps to accelerate development. He then imposed a sharp cutback after the BP disaster to give regulators and oil companies time to put new safeguards in place.

After the president was satisfied that drilling could resume safely, and in response to public anxiety about high fuel costs, he shifted back to a more pro-development stance, the aides said.

“These spikes in gas prices are often temporary,” Mr. Obama said on May 14 in a radio and Internet address, “and while there are no quick fixes to the problem, there are a few steps we should take that make good sense.”

The public’s support for offshore drilling has tracked changes in the price of gasoline. When gas prices were near record highs in the summer of 2008 and again this spring, support for domestic drilling was highest.

Conversely, unease about the effects of offshore drilling peaked after the BP accident, which killed 11 rig workers and spewed nearly five million barrels of crude into the gulf.

“News of that incident has faded, possibly lessening Americans’ resistance to coastal area drilling,” Gallup said when releasing its poll in March that showed 60 percent of Americans supportive.

The poll found that 49 percent of Americans favor opening the Arctic National Wildlife Refuge for oil exploration, a step the Obama administration strongly opposes. That is the highest level of support for drilling in the Arctic refuge since Gallup first asked the question in 2002.

The nationwide poll of 1,021 adults was conducted by telephone in early March.

“Timing is everything,” said Jack N. Gerard, president of the American Petroleum Institute, the industry’s most prominent lobbying group in Washington. “As the price of gasoline has increased, public attention has turned once again to the question of energy. When they hear their elected officials continue to resist development of American resources, they are appalled.”

The Gallup survey found that men are more likely than women to support drilling offshore and in Alaska and support is much higher among Republicans than Democrats. It also found regional variations, with the strongest backing for aggressive oil exploration in the South and the most significant opposition along the East and West Coasts.

And while the public appears to support exploiting domestic oil and gas resources, there is also skepticism about the economic and environmental costs of America’s continued reliance on oil. A New York Times/CBS News poll taken in March asked how important it was for the United States to develop an alternative to oil as a major source of energy. Fully 94 percent of respondents said it was very or somewhat important to do so.

The Times/CBS News poll was conducted by telephone with 1,266 adults nationwide.

Daniel J. Weiss, a senior fellow in Washington at the Center for American Progress, said that while the public tends to support more domestic oil and gas drilling, they see it as only one egg in a basket of policies to lower energy costs, reduce dependence on foreign oil and clean up the environment.

“Americans generally support an all-of-the-above strategy,” Mr. Weiss said. “They say, ‘Let’s have more offshore drilling, but also higher mileage standards for our cars and trucks. Let’s crack down on the speculators and invest in electric cars, natural gas trucks and biofuels.’ ”

Mr. Gerard said that Mr. Obama’s sporadic and reluctant support for increased domestic production was largely politically driven and not part of a comprehensive energy strategy. But he praised the president for at least appearing responsive to public opinion in calling for more American oil and gas.

“Until the economy gets back on track, until the unemployment rate comes down, and with the price of energy high, I think you’ll see the president focus more and more on the supply side,” he said. “And as pressure continues to mount as we get closer to Election Day, I think you’ll see more of that.”
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Source: The New York Times

Stocks on Wall Street rose on Tuesday as investors focused on corporate earnings and the economy, moving on from the negative credit rating outlook given to the United States the previous day.

Stocks changed course after the three main equity indexes fell by more than 1 percent on Monday, when the ratings agency Standard & Poor’s revised its outlook on the nation’s Triple AAA rating — the highest level — to negative from stable.

The Dow Jones industrial average closed up 65.16 points, or 0.53 percent, at 12,266.75. The S.& P. 500-stock index was up 7.48 points, or 0.57 percent, at 1,312.62 and the Nasdaq gained 9.59 points, or 0.35 percent, at 2,744.97.

On Monday the three indexes posted their largest one-day drop in more than a month after the S.& P. announcement.

“The market has moved on from that,” said Quincy Krosby, a market strategist for Prudential Financial. “But the debt ceiling issue is not going to be forgotten.”

Bond prices were steady on Tuesday. The Treasury’s benchmark 10-year note rose 3/32, to 102 5/32, and the yield slipped to 3.36 percent from 3.37 percent late Monday.

Anthony G. Valeri, a senior vice president and market strategist for LPL Financial, said the behavior of the bond market suggested that the market does not see the default risk changing for United States Treasuries.

That was the view put forward by the Treasury secretary, Timothy F. Geithner, who tried in TV appearances to reassure investors that the Democrats and Republicans would reach a deal on the nation’s deficit, a concern at the heart of the S.& P.’s reasoning for lowering its outlook.

He said on Fox Business Network there was “no risk” that the United States would lose its AAA credit rating, disagreeing with Standard & Poor’s negative assessment, and said that investors were still confident in government bonds.

“He is out there defending,” said Ms. Krosby, referring to Mr. Geithner’s appearances.

But, she added: “Ultimately the markets will be the official arbiter of U.S. credit.”

Added Mr. Valeri: “I think he is trying to do potential damage control in Treasuries. Not that he needed to. The bond market saw right through the S.& P. move.”

“I think the market has moved on, and we have also got the Easter and Passover holidays this week,” he said.

The bank reporting season was in full swing. Goldman Sachs reported first-quarter net income of $2.74 billion, down 22 percent from the period a year earlier, after taking a one-time charge to pay back the investor Warren E. Buffett.

The profit, $1.56 a share, beat analysts’ expectations of 82 cents a share, according to Thomson Reuters, but its shares fell $1.92, to $151.86.

Bank of America declined 0.64 percent to $12.34; Morgan Stanley was down 1.69 percent to $26.10 and JPMorgan Chase was up 1.57 percent to $44.65. Financials as a whole rose 0.36 percent.

A Commerce Department housing market report said home construction rose 7.2 percent in March to a seasonally adjusted 549,000 units a year. Permits rose 11.2 percent, it said, helping shares of materials companies rise nearly 2 percent.

Alcoa rose nearly 2 percent to $16.44 and United States Steel was up 4.46 percent to $52.74. Johnson & Johnson rose more than 3 percent to $62.69. In its first quarter results, the company raised its earnings forecast for 2011 to $4.90 to $5.00 a share.

“The market is focusing on going back to the earnings season and it is punishing companies that have not done well,” said Ms. Krosby.

“But you had better news on the housing front and the market is rewarding the housing related stocks,” said Ms. Krosby. “If you look at the entire tone of the market, it is short on top line revenue growth, and the financials are a barometer of the U.S. economy. For their earnings not to come in as well, particularly when it comes to loan growth, is a thorn in the side of this recovery.”
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Source: The New York Times

With a little more money in their wallets and a little less fear in their hearts, American consumers helped pull the economy up by its bootstraps in the fourth quarter of last year.

Gross domestic product, a broad measure of all the goods and services produced by the economy, grew at an annual rate of 3.2 percent last quarter, up from 2.6 percent in the previous period, according to a Commerce Department report released Friday.

As a result of this slightly speedier expansion, overall economic output has finally matched its prerecession peak. Still, given the millions of jobless American workers, the economy has fallen far short of what it could be if it were healthy, economists said.

“Things are better, but they’re not anywhere near where they need to be to make major inroads into unemployment,” said John Ryding, chief economist at RDQ Economics.

Thanks to modestly higher paychecks and swelled investment portfolios, Americans felt comfortable buying again and reducing how much they salted away. Consumer spending grew at an annual rate of 4.4 percent in the October-December period, its quickest pace in nearly five years and almost double the growth rate from the previous quarter.

The payroll tax cut and the extension of the Bush tax cuts that were passed in December are expected to further buoy consumer spending, which many economists predict will continue to grow at an annual pace of about 3 or 3.5 percent in 2011.

The shrinking trade deficit also helped the economy regain some momentum.

Output growth had sputtered in the middle of 2010. That slowdown was largely the result of rocketing growth in imports, which are subtracted from the government’s calculations of gross domestic product. In the fourth quarter, however, a combination of rising exports and shrinking imports contributed to the faster output growth rate.

“In the middle of last year, imports showed the biggest drag on G.D.P. growth in more than 60 years,” said Dean Maki, chief United States economist at Barclays Capital. “That kind of rise in imports just wasn’t sustainable.”

Businesses also increased their spending on equipment and software, if not quite at the double-digit growth rates shown earlier in the year. Economists are hoping that these types of investments — and a replenishing of inventories, which ran low at the end of the last quarter — will soon be matched by investments in new workers as well.

“Firms have the cash to hire,” said Augustine Faucher, director of macroeconomics at Moody’s Analytics. “They just need the confidence to do so, and that could develop quickly.”

Friday’s overall output number came in slightly below analysts’ expectations, which had pegged the annual growth rate to reach 3.5 percent in the fourth quarter. The preliminary number that the Commerce Department eventually reported was about apace with forecasts for 2011. The Congressional Budget Office forecast that the economy would grow 3.1 percent in 2011, a figure echoed by many Wall Street analysts.

While that rate would be faster than last year’s, it is still probably not robust enough to significantly reduce the unemployment rate, which stood at 9.4 percent in December. In the couple of years before the Great Recession, which began in December 2007, the American jobless rate was less than half that.

“We’re still very much below the output growth rate needed to absorb the slack in labor market,” said Prajakta Bhide, a research analyst for the United States economy at Roubini Global Economics. “We’re expecting to end the year with an unemployment rate of 9 percent.”

Treasury Secretary Timothy F. Geithner, speaking in an interview Friday at the World Economic Forum in Davos, Switzerland, said that “brutal” job cuts early in the recession “consign us to a tragically more moderate reduction in unemployment as the economy recovers.” But he said he had growing confidence that the United States economy would continue to expand.

The International Monetary Fund has predicted that other rich countries, like those in the euro zone, will have modest growth in the coming year, while China will surge ahead with growth nearing 10 percent. Though the rapid-fire growth in emerging markets may push the prices of food and energy higher, these developing countries could help increase global growth by encouraging more trade.

“There are concerns here that China is managing its exchange rate, and that does limit the upside for U.S. exporters,” said Paul Ashworth, a senior United States economist at Capital Economics. “But in general stronger growth in developing countries, as long as it’s sustainable and not the result of a credit boom that could come crashing down, should benefit developed countries like the United States as well.”
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Source: The Washington Post

The United States economy grew at an annual rate of 2 percent in the third quarter, the Commerce Department reported Friday, as it struggles to gain any momentum for a sustained recovery.

That estimate matched the consensus forecasts for the gross domestic product, and is a slight uptick from the second quarter.

An economy growing at a sluggish, 2 percent, nearly all economists agree, cannot produce nearly the demand needed to bring down the nation’s painfully high 9.6 percent unemployment rate. And the trade gap remains wide, as imports outpaced exports.

These numbers are unlikely to provide much of a morale boost for President Obama and Democrats, who are just days away from crucial midterm elections. High unemployment and soaring foreclosure numbers in the Midwest and Western states already made this a particularly tough election season for Democrats. Friday’s numbers will probably produce little relief.

“It’s the expected G.D.P. number, which is mostly bad news for the economy,” said Josh Bivens, an economist with the liberal leaning Economic Policy Institute. “The growth rate is just nowhere near enough to put downward pressure on unemployment.”

Demand, seen as crucial to re-igniting the American economy, appeared flaccid in the third quarter, although there were, here and there, hints of increased consumer spending. Income growth adjusted for inflation and taxes slowed noticeably, rising 0.5 percent in the July-September period after increasing 4.4 percent in the second quarter. And at the other end, prices excluding food and energy increased 0.6 percent, compared with 0.8 percent in the second quarter.

In recent weeks, the economy has presented two faces, which is reflected in the latest G.D.P. numbers. There have been fledgling signs of growth: home sales and chain store sales are up bit, a swelling stock market has raised consumer confidence a few notches, and jobless claims fell noticeably last week, albeit to a still high and painful level.

At the same time, the steroidal effect of the stimulus spending is fading. City and state governments have shed tens of thousands of employees, and states face a sea of red ink as they look at next year’s budgets.

“Two percent growth is not great but it beats zero,” said Steve Blitz, chief economist with ITG investment research. “The consumer is still underemployed and over indebted, so the normal push won’t be there. But you’re at least seeing enough spending and growth by the consumer to keep the economy going at 2 percent or more.”

Friday’s number is a Commerce Department estimate based on a reading of many sectors of the economy, and that the final number may be revised substantially higher or lower. In the second quarter, the surprise was to the downside: the initial G.D.P. report had placed the growth rate at 2.4 percent, and it subsequently wheeled down to an annual rate of 1.7 percent.

The midterm elections on Tuesday further complicate the picture. As certainty edges aside uncertainty after votes are counted, American business might start spending a bit more, and banks might start lending. But few are willing to turn that wish into a forecast.

Consumer spending, which accounts for 70 percent of the economic growth in the United States, remains the great unknown. Americans have shed some debt, which is good, but largely in an unsightly fashion, which is not so good. They have defaulted in record numbers on credit card debt and lost their homes to foreclosure. The Federal Reserve Bank of San Francisco issued a notably gloomy forecast recently. “The economic recovery is proceeding at a very slow pace and has lost momentum since the spring,” the bank noted. “No sector of the private economy stands ready to drive a robust recovery.”

And David Rosenberg, economist for the Canadian investment firm Gluskin Sheff and Associates, does not put a lot of faith in consumers pulling the economy out of its ditch. “Make no mistake,” he said, “the primary trend remains on a downward slope as it pertains to discretionary spending.”

Personal savings was estimated at 5.5 percent, compared with 5.9 percent in the second quarter.

The European economies have shown signs of stabilizing of late, with Germany as a potential driver of growth (its unemployment recently reached an 18-year low). And this could bode well for America’s export sector. But imports in the third quarter once again grew faster than exports Imports grew at an annual rate of 17.4 percent, compared with an 5 percent for exports.

Government spending has slowed as the effects of the stimulus spending begin to wear off. That was reflected in the unemployment numbers for September. Companies added just 64,000 jobs last month, but over all, the economy lost 95,000 nonfarm jobs in September, the result of a 159,000 decline in government jobs. Local governments were particularly hard hit.

“The problematic factor is that consumers remain fundamentally insolvent or worried about becoming so, and too many of the major banks are zombies uninterested in commercial or industrial lending,” said James K. Galbraith, an economics professor at the University of Texas.

Still, each quarter that the economy does not lapse back into recession adds incrementally to consumer and business confidence, and perhaps eventually to growth. The great immediate test, economists say, is the fourth quarter of 2010. The hope, no more than that at this point, is that small signs of market strength might coalesce into something that looks like actual recovery.

“As with money, there is a power of compounding the economy,” Mr. Blitz said. “The longer you go with 2 percent growth, you begin to push up against constraints, and the more the fear of unemployment ebbs, the more chance there is that people will begin to feel confident. It’s a very slow burn.”
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Source: The New York Times

The percentage of Americans struggling below the poverty line in 2009 was the highest it has been in 15 years, the Census Bureau reported Thursday, and interviews with poverty experts and aid groups said the increase appeared to be continuing this year.

With the country in its worst economic crisis since the Great Depression, four million additional Americans found themselves in poverty in 2009, with the total reaching 44 million, or one in seven residents. Millions more were surviving only because of expanded unemployment insurance and other assistance.

And the numbers could have climbed higher: One way embattled Americans have gotten by is sharing homes with siblings, parents or even nonrelatives, sometimes resulting in overused couches and frayed nerves but holding down the rise in the national poverty rate, according to the report.

The share of residents in poverty climbed to 14.3 percent in 2009, the highest level recorded since 1994. The rise was steepest for children, with one in five affected, the bureau said.

The report provides the most detailed picture yet of the impact of the recession and unemployment on incomes, especially at the bottom of the scale. It also indicated that the temporary increases in aid provided in last year’s stimulus bill eased the burdens on millions of families.

For a single adult in 2009, the poverty line was $10,830 in pretax cash income; for a family of four, $22,050.

Given the depth of the recession, some economists had expected an even larger jump in the poor.

“A lot of people would have been worse off if they didn’t have someone to move in with,” said Timothy M. Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin.

Dr. Smeeding said that in a typical case, a struggling family, like a mother and children who would be in poverty on their own, stays with more prosperous parents or other relatives.

The Census study found an 11.6 percent increase in the number of such multifamily households over the last two years. Included in that number was James Davis, 22, of Chicago, who lost his job as a package handler for Fed Ex in February 2009. As he ran out of money, he and his 2-year-old daughter moved in with his mother about a year ago, avoiding destitution while he searched for work.

“I couldn’t afford rent,” he said.

Danise Sanders, 31, and her three children have been sleeping in the living room of her mother and sister’s one-bedroom apartment in San Pablo, Calif., for the last month, with no end in sight. They doubled up after the bank foreclosed on her landlord, forcing her to move.

“It’s getting harder,” said Ms. Sanders, who makes a low income as a mail clerk. “We’re all pitching in for rent and bills.”

There are strong signs that the high poverty numbers have continued into 2010 and are probably still rising, some experts said, as the recovery sputters and unemployment remains near 10 percent.

“Historically, it takes time for poverty to recover after unemployment starts to go down,” said LaDonna Pavetti, a welfare expert at the Center on Budget and Policy Priorities, a liberal-leaning research group in Washington.

Dr. Smeeding said it seemed almost certain that poverty would further rise this year. He noted that the increase in unemployment and poverty had been concentrated among young adults without college educations and their children, and that these people remained at the end of the line in their search for work.

One indirect sign of continuing hardship is the rise in food stamp recipients, who now include nearly one in seven adults and an even greater share of the nation’s children. While other factors as well as declining incomes have driven the rise, by mid-2010 the number of recipients had reached 41.3 million, compared with 39 million at the beginning of the year.

Food banks, too, report swelling demand.

“We’re seeing more younger people coming in that not only don’t have any food, but nowhere to stay,” said Marla Goodwin, director of Jeremiah’s Food Pantry in East St. Louis, Ill. The pantry was open one day a month when it opened in 2008 but expanded this year to five days a month.

And Texas food banks said they distributed 14 percent more food in the second quarter of 2010 than in the same period last year.

The Census report showed increases in poverty for whites, blacks and Hispanic Americans, with historic disparities continuing. The poverty rate for non-Hispanic whites was 9.4 percent, for blacks 25.8 percent and for Hispanics 25.3 percent. The rate for Asians was unchanged at 12.5 percent.

The median income of all households stayed roughly the same from 2008 to 2009. It had fallen sharply the year before, as the recession gained steam and remains well below the levels of the late 1990s — a sign of the stagnating prospects for the middle class.

The decline in incomes in 2008 had been greater than expected, and when the two recession years are considered together, the decline since 2007 was 4.2 percent, said Lawrence Katz, an economist at Harvard. Gains achieved earlier in the decade were wiped out, and median family incomes in 2009 were 5 percent lower than in 1999.

“This is the first time in memory that an entire decade has produced essentially no economic growth for the typical American household,” Mr. Katz said.

The number of United States residents without health insurance climbed to 51 million in 2009, from 46 million in 2008, the Census said. Their ranks are expected to shrink in coming years as the health care overhaul adopted by Congress in March begins to take effect.

Government benefits like food stamps and tax credits, which can provide hundreds or even thousands of dollars in extra income, are not included in calculating whether a family’s income falls above or below the poverty line.

But rises in the cost of housing, medical care or energy and the large regional differences in the cost of living are not taken into account either.

If food-stamp benefits and low-income tax credits were included as income, close to 8 million of those labeled as poor in the report would instead be just above the poverty line, the Census report estimated. At the same time, a person who starts a job and receives the earned income tax credit could have new work-related expenses like transportation and child care. Unemployment benefits, which are considered cash income and included in the calculations, helped keep 3 million families above the line last year, the report said, with temporary extensions and higher payments helping all the more.

The poverty line is a flawed measure, experts agree, but it remains the best consistent long-term gauge of need available, and its ups and downs reflect genuine trends.

The federal government will issue an alternate calculation next year that will include important noncash and after-tax income and also account for regional differences in the cost of living.

But it will continue to calculate the rate in the old way as well, in part because eligibility for many programs, from Medicaid to free school lunches, is linked to the longstanding poverty line.
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Source: The New York Times

There is no more disputing it: the economic recovery in the United States has indeed slowed.

The nation’s economy has been growing for a year, with few new jobs to show for it. Now, with growth at an annual rate of 2.4 percent in the second quarter, and federal stimulus measures fading, the jobs outlook appears even more discouraging.

“Given how weak the labor market is, how long we’ve been without real growth, the rest of this year is probably still going to feel like a recession,” said Prajakta Bhide, a research analyst for the United States economy at Roubini Global Economics. “It’s still positive growth — rather than contraction — but it’s going to be very, very protracted.”

A Commerce Department report on Friday showed that the economy had grown at a faster pace earlier in the recovery, expanding at an annual rate of 5 percent at the end of 2009 and 3.7 percent in the first quarter of 2010. Consumer spending, however, was weaker than initially believed.

Many economists are forecasting a further slowdown in the second half of the year, perhaps around an annual rate of 1.5 percent. That is largely because businesses have refilled the stockroom shelves that they had whittled down during the financial crisis, meaning there will not be much need for additional inventory orders.

Fiscal stimulus policies are also expiring, which may further drag on growth. And individual stimulus programs like expanded unemployment benefits have faced huge political battles each time they have come up for extension in Congress.

The approaching mid-term elections may further entrench the political stalemate after Congress returns from its August recess. As a result, pressure will probably increase on the Federal Reserve to use its tools to prevent a double-dip. Recent reports from Fed officials suggest the central bank has become increasingly worried about where the economy is headed.

American businesses, if not American households, seem to be hanging on.

The key driver of growth in the second quarter was nonresidential fixed investment, which covers items like office buildings and purchases of equipment and software. This sector rocketed up at an annual rate of 17 percent in the second quarter, compared with a 7.8 percent increase in the first. The equipment and software category alone grew at an annual rate of 21.9 percent, the fastest pace in 12 years.

“We’re seeing a sort of handover from consumer spending to capital spending,” John Ryding, chief economist at RDQ Economics, said “The consumer also looks to have saved more than we thought before, which means they’re perhaps further on the road to financial adjustment than we thought they were previously.”

Growth in consumer spending, which is usually a leading indicator of a recovery and which accounts for most economic activity in the United States, has been leveling off. It grew at an annual rate of 1.6 percent in the second quarter after an annual increase of 1.9 percent in the previous quarter.

The personal savings rate in the second quarter was estimated to have been 6.2 percent of disposable income, significantly higher than the 4 percent that had been estimated.

A separate report released Friday by the University of Michigan and Reuters showed that consumer sentiment tumbled in July.

The fact that businesses seem to be investing more in equipment than in hiring may be a reason why households have been reluctant, or perhaps unable, to pick up the pace of their spending.

“There are limits on the degree to which you can substitute capital for labor,” Mr. Ryding said. “But you can understand that businesses don’t have to pay health care on equipment and software, and these get better tax treatment than you get for hiring people. If you can get away with upgrading capital spending and deferring hiring for a while, that makes economic sense, especially in this uncertain policy environment.”

Data revisions of covering the last three years were also released on Friday. These showed that overall 2009 and 2008 were slightly worse than previously reported, but that the first quarter of 2010 was better.

As the global economy recovers, America’s trade activity has picked up. But imports once again grew faster than exports last quarter, presenting a drag on growth. Imports spiked at an annual rate of 28.8 percent, the biggest jump in a quarter-century, compared with an annual increase of 10.3 percent in exports.

Government spending shot up more than many anticipated, growing at an annual rate of 4.4 percent after a decline of 1.6 percent in the first quarter. Public spending was broad-based, with even state and local spending increasing for the first time in a year. This may be in part because of federal stimulus monies transferred to the states.

“You could see this in the monthly number for state and local construction spending,” said Nigel Gault, chief United States economist at IHS Global Insight. “Construction slows down during winter months, so stimulus may not have been doing as much earlier this year.”

Other policy initiatives, like the expiring homebuyer’s tax credit, also appear to have lifted demand. Residential fixed investment spending on items like new homes grew at an annual pace of 27.9 percent in the second quarter, after falling 12.3 percent the previous period.

“This will almost certainly reverse hard next quarter,” Jay Feldman, director of economics at Credit Suisse Securities, wrote in a note to clients.
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Source: The New York Times