A tepid consumer is one reason why the U.S. economy grew slower than expected in the second quarter.
According to the Commerce Department, the nation’s Gross Domestic Product, or GDP, rose at an annual rate of 1.3% from April to June. Economists were expecting a gain of 1.8%.
Consumer spending, which is responsible for about 70% of all economic activity, was the weakest in two years.
Gus Faucher, Director of Macroeconomics at Moody’s Analytics, explains:
“Obviously, consumers are very concerned when gasoline hit $4 gallon in the spring, so that caused them to pull back on other things. And then auto sales were very weak because of the Japanese earthquake and the disaster there, there were fewer imports of Japanese cars, there was lower production of some U.S.-made vehicles because of part shortages from Japan.”
The impact of high prices at the pump and the supply disruption from Japan were supposed to be short-term drags on the economy, but revisions for economic growth from October to March, show the recovery was already weakening before the spring.
Economists say these weak growth numbers could exacerbate fears the economy will get even weaker as the debt impasse in Washington threatens to further derail consumer and business confidence.
Bottom line: The U.S. economy grew at a slower-than-expected 1.3% annualized rate in the second quarter as the weakest consumer spending in two years kept the economic recovery on shaky ground.