WASHINGTON (AP) ? The economy likely grew at a weaker pace this spring than the government first estimated. The anticipated revision could rattle an already edgy Wall Street and exacerbate fears that the U.S. economy is dangerously close to another recession.
Economists forecast that the economy expanded at an annual rate of 1.1 percent in the April-June quarter, according to a survey by FactSet. That’s lower than the government’s first growth estimate of 1.3 percent.
If economists are correct, growth could fall below the scant 0.8 previously estimated for the first half of the year ? the worst since the recession officially ended two years ago.
The Commerce Department will release the report Friday at 8:30 a.m. Eastern. The estimate is the second of three the government issues for each quarter. The biggest drop in exports in more than two years is the main reason economists expect weaker second-quarter growth.
Michael Feroli, an economist at JPMorgan Chase, has pointed out that nine of the 11 recessions since World War II were preceded by a period of growth of 1 percent or less.
“Stalls of the sort seen in the first half of the year have been harbingers of even worse growth to come,” he said in a note to clients last week.
Last month’s report that showed the economy barely grew in the first half of the year contributed to a rocky summer for the economy.
Congress and the White House agreed earlier this month to raise the nation’s borrowing limit just hours before a possible default on the government’s debt. The bitter debate prompted Standard & Poor’s to downgrade the U.S. government’s long-term debt rating for the first time in history. That, along with a batch of grim economic data and a gloomy outlook from the Federal Reserve, led to a sell-off on Wall Street in late July and early August. The Dow Jones industrial average has fallen 12 percent from its July 21 close.
“We’ve been bombarded with negative headlines, one after the other,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets.
Several dismal economic reports have suggested the economy worsened in the July-September quarter, sending the stock market lower. Manufacturing in the mid-Atlantic region contracted in August by the most in more than two years, a survey by the Federal Reserve Bank of Philadelphia found. A Richmond Fed survey released Tuesday and a New York Fed survey last week also pointed to slowdowns in those areas, although not as severe.
There have been some positive signs. The economy added 117,000 net jobs in July, twice the number added in each of the previous two months. Consumers spent more on retail goods last month than in any month since March. U.S. automakers rebounded last month to boost factory production by the most since the Japan crisis.
A key question is whether consumers and businesses will pull back on spending and investment in the wake of the debt downgrade and stock market turmoil. Several economists say there is now a 40 percent chance of another recession in the next year.
JPMorgan Chase projects the U.S. economy will grow only 0.9 percent this year and 1.7 percent in 2012, much lower than the bank’s estimates just a few weeks ago. Other economists have made similar downgrades.
The economic report comes the same day that Federal Reserve Chairman Ben Bernanke will deliver a highly-anticipated speech in Jackson Hole, Wyo. Investors hope he will signal that the Fed will launch a new effort to boost the economy, but analysts don’t expect anything ambitious.
The central bank has already cut the benchmark short-term interest rate it controls to nearly zero, and last week pledged to keep it there until mid-2013. But so far lower interest rates haven’t helped: mortgage rates, for example, are already at record lows, and home sales are still falling.