New doubts on recovery as US economy falters

The pace of the recovery of the world's largest economy slowed markedly during the second quarter of the year, official data revealed yesterday, prompting further anxiety about the global financial outlook.

The Department of Commerce said that US gross domestic product rose by 2.4 per cent on an annualised basis over the three months to the end of June, down from 3.7 per cent during the first quarter.

The data disappointed investors, who had been expecting a figure of 2.6 per cent or higher, with shares falling across Western stock markets in the hours following the release of the data.

To add to the gloom, the Department of Commerce also revised previously released data to show that the US recession, which lasted from the end of 2007 to the middle of last year, had been worse than previously thought, with the economy contracting by 4.1 per cent during the downturn rather than the initial estimate of 3.7 per cent.

However, economists professed themselves more worried about the future, particularly with the latest consumer confidence survey yesterday from the University of Michigan, a keenly watched indicator, suggesting that Americans are now more gloomy about the prospects for the economy than at any time this year.

Nigel Gault, the chief US economist at IHS Global Insight, said: "The economy entered the second quarter with plenty of momentum, but exited with very little – we expect that growth in the third quarter will be slower."

Christine Romer, an economic adviser to the White House, also warned that America's economy needed to do better. "This solid rate of growth indicates that the process of steady recovery from the recession continues," she said. "Nevertheless, faster growth is needed to bring about substantial reductions in unemployment."

In practice, the latest GDP data was very mixed, with the positive effect of better business investment and some limited improvements from the real estate sector undermined by restrained consumer spending and a poor export performance.

The figures reinforced the warning last week from Ben Bernanke, chairman of the Federal Reserve, who unnerved world markets by telling Congress that the outlook for the US economy was "unusually uncertain".

Mr Bernanke also said that the Fed would intervene if it believed doing so was necessary to keep the recovery on the road. James Bullard, the president of the St Louis Federal Reserve, went further on Thursday, calling for a new round of quantitative easing in the US.

In addition to monetary policy initiatives, pressure is mounting on the US government to do more, with the International Monetary Fund warning yesterday that President Barack Obama may soon have to consider an increase in the stimulus spending he has already embarked upon in order to boost the recovery.

"Looking ahead, risks are elevated and tilted to the downside (as clear from the most recent batch of economic indicators), with particular risks from a double dip in the housing market and spillovers if external financial conditions worsen," the IMF warned.

"With recovery still dependent on policy support, rising downside risks, and substantial long-term fiscal and financial sector challenges, further decisive action is needed to achieve stable medium-term growth and limit risks of adverse international spillovers."

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Guru Careers: Communications Exec / PR Exec

£25 - £30K: Guru Careers: We are seeking a highly-motivated and ambitious Comm...

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

Day In a Page

On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview
When do the creative juices dry up?

When do the creative juices dry up?

David Lodge thinks he knows
The 'Cher moment' happening across fashion just now

Fashion's Cher moment

Ageing beauty will always be more classy than all that booty
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

Saving Private Brandt

A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral