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Economy Sputtered Through First Half Of 2011

The economy expanded at meager rate of 1.3 percent annual rate in the spring after scarcely growing at all in the first three months of the year, the Commerce Department said Friday.

The combined growth for the first six months of the year was the weakest since the recession ended. The government revised the January-March figures to show just 0.4 percent growth — down sharply from its previous estimate of 1.9 percent.

High gas prices and scant income gains forced consumers to pull back sharply on spending in the spring.

Stock futures fell after the report was released.

The sharp slowdown means the economy this year will likely grow at a weaker pace than last year. And economists don't expect growth to pick up enough in the second half of the year to lower the unemployment rate, which rose to 9.2 percent last month.

Economists had initially thought that a Social Security payroll tax cut would boost growth enough to lower the unemployment rate. But most of that money has gone to pay for higher gas prices. And employers have pulled back on hiring after seeing less spending by Americans.

Consumer spending was almost flat this spring. It increased only 0.1 percent, after 2.1 percent growth in the winter. Spending on long-lasting manufactured goods, such as autos and appliances, fell 4.4 percent.

Government spending fell for the third straight quarter. And state and local governments cut spending, the seventh time in eight quarters since the recession ended.

The slowdown in growth was broad-based. Business spending on equipment and software grew 5.7 percent in the second quarter, down from the first quarter's 8.7 percent pace and below the double-digit gains posted last year.

Americans are seeing little gain in their incomes. After-tax incomes, adjusted for inflation, rose only 0.7 percent, matching the previous quarter and the weakest since the recession ended.

The government also revised data for the previous eight years. The changes showed the recession was worse than previously thought, and the recovery has been weaker. The economy shrank 3.5 percent in 2009, compared to a previous estimate of 2.5 percent.

Complicating an already-weak economy is the debt crisis in Washington. No matter what lawmakers do to resolve that crisis, their decision will likely slow growth in the short term. A deal to raise the borrowing limit would likely include long-term spending cuts, which would withdraw government stimulus at a precarious time. If Congress fails to raise the borrowing limit and the government defaults on its debt, financial markets could fall and interest rates could rise.

Most economists had expected growth to pick up slightly in the second half of the year, as the impact of high gas prices and supply disruptions stemming from Japan's March 11 earthquake ease. But few expected growth to be strong enough to lower the unemployment rate. And Friday's report, which was below what many economists forecast, will likely dampen expectations further.

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