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Tags: boehner | obama | gdp | report | growth | gop

Republicans Blast Obama After Anemic Economic Report: Keep Bush Tax Cuts

Friday, 27 July 2012 10:35 AM

U.S. economic growth slowed as expected in the second quarter as consumers spent at their slowest pace in a year, increasing pressure on policymakers to do more to bolster the recovery.

Gross domestic product expanded at a 1.5 percent annual rate between April and June, the weakest pace of growth since the third quarter of 2011, the Commerce Department said on Friday.

First-quarter growth was revised up to a 2.0 percent pace from the previously reported 1.9 percent. Output for the fourth quarter was raised to a 4.1 percent rate from 3.0 percent.

"This is the sign...that policymakers must act to provide more support to the economy if they want it to grow fast enough to start putting sustained downward pressure on today's still too-high unemployment rate," said Josh Bivens, research and policy director at the Economic Policy Institute.

Republicans, meanwhile, seized on the Commerce report as more evidence of President Obama's mismanaging of the economy during the worst downturn since the Great Depression. They also used the report to build their case for extending all the Bush-era tax rates before they expire at the end of the year.

"Today's GDP report is a troubling sign for the future of our economy, and it underscores the need to stop all of the looming tax hikes that will weaken it further," House Speaker John Boehner said, Fox News reported.

"Today's weak GDP number is just more devastating news for struggling American families. Our economy is growing far too slowly, proving President Obama's lack of focus on jobs is taking its toll," said Republican National Committee Chairman Reince Priebus.

"The president claims to be fighting for middle class jobs, but he has not had a Daily Economic Briefing on his official schedule in over a year," Priebus said. "He also has not bothered to meet with his Jobs Council in over six months, but he did manage to attend over 110 fundraisers and play 10 rounds of golf in that time. Clearly, he has revealed his true priorities.

"Instead of spending his time fighting for American jobs, President Obama is working desperately to save his own. As a result, 23 million Americans are struggling for work. We need a new president who understands how the economy works and who will make job creation his number one priority. Mitt Romney will be that president."

The Mitt Romney campaign pointed to the figure as the latest sign the economy under Obama simply cannot produce enough growth to put millions of jobless Americans back to work.

"It's a picture of a decelerating economy," said Romney economic adviser Dean Glenn Hubbard. "At that pattern, the economy simply will never return to full employment."

A campaign email with a snapshot of the gloomy GDP headlines also poked at Obama's recent "you didn't build that" gaffe. The email was titled: "The Obama Economy: Barack Obama Built This," Fox reported.

The ailing economy could cost President Obama a second term in office when Americans vote in November.

The expansion following the 2007-09 recession is the slowest since the 1980-81 period and the recession itself was the deepest in the post-war period, annual revisions to the data confirmed.

The weak second-quarter reading, which was in line with economists' expectations, could raise expectations of a third round of bond purchases, also known as quantitative easing, by the Federal Reserve.

No major policy announcement is expected at the Fed's two-day meeting next week, but many economists now say the central bank could move when policymakers gather on Sept. 12-13.

"The Fed may unleash another round of quantitative easing soon, but the real question is how much positive impact it will have amid a backdrop of ongoing household deleveraging," said Kathy Bostjancic, an economist at the Conference Board.

The economy has been hit by worries of deep government spending cuts and higher taxes scheduled to kick in at the start of 2013, as well as troubles from the debt crisis in Europe.

The biggest factor weighing on the recovery is fear that politicians in Washington would be unable to avoid the so-called fiscal cliff at the turn of the year, economists said.

Recent economic data ranging from employment to manufacturing suggest limited scope for growth to bounce back in the third quarter.

U.S. stock index futures held gains after the GDP report, while Treasury debt prices extended losses. The dollar rose against the yen.


Much of the slowdown in growth in the second quarter was caused by a softening in consumer spending as Americans eased off on automobile purchases due to tepid job and income growth.

Consumer spending, which makes up about 70 percent of U.S. economic activity, increased at a 1.5 percent rate, a step down from the 2.4 percent pace logged in the previous three months.

Consumer spending was the weakest in a year. Much of that reflected a drop in spending on long-lasting goods such as automobiles, which had buoyed consumption in the prior period.

But there was some silver lining, with spending on services rising at a 1.9 percent rate, stepping up from 1.3 percent.

Labor market weakness, marked by three straight months of job growth at less than 100,000 jobs per month, remains a major constraint to spending. The unemployment rate was 8.2 percent in June.

The economy needs to grow at a rate of between 2 percent and 2.5 percent to keep the unemployment rate stable.

"We are a long way from the 4 percent growth that the Fed would like to see. The economy needs to make good progress in bringing unemployment down," said Avery Shenfeld, an economist at CIBC World Markets in Toronto.

In the second quarter, cautious Americans opted to save for a rainy day, pushing the saving rate up to 4 percent from 3.6 percent in the first three months of the year, the highest in a year.

Business inventories rose $66.3 billion in the last quarter, contributing nearly a third of a percentage point to GDP growth. However, with domestic demand slowing, businesses could find themselves with unwanted stock, which would hurt growth in the third quarter.

Excluding inventories, GDP rose at a 1.2 percent rate, the weakest pace since the first quarter of 2011. In the first quarter, the comparable figure was 2.4 percent.

Export growth pushed higher, despite slowing global demand, especially in Europe and China. But that was offset by a strong rise in imports. Trade subtracted almost a third of a percentage point from GDP growth.

Government spending contracted for an eighth straight quarter, but the pace of decline slowed. Defense spending fell marginally after two quarters of hefty declines.

There was no relief from state and local government spending, which has been a drag through much of the recovery. State and local government spending fell at 2.1 percent rate after dropping 2.2 percent in the first quarter.

Housing - the Achilles heel of the U.S. economy for six years - increased at a 9.7 percent rate, slowing from the prior period's weather-related 20.5 percent surge.

Business spending on equipment and software rose at a 7.2 percent rate.

With demand weak, inflation pressures subsided during the quarter. A price index for personal spending rose at a 0.7 percent rate, the lowest rate since the second quarter of 2010, after rising 2.5 percent in the first quarter.

A core measure that strips out food and energy costs advanced at a 1.8 percent rate, moderating from 2.2 percent in the prior quarter.

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Friday, 27 July 2012 10:35 AM
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