Slowed US economic growth prompts Federal Reserve to lower its forecasts

THE US economy expanded less than estimated in the second quarter, underscoring the weakness that has prompted the Federal Reserve to mark down its growth forecasts.

Gross domestic product climbed at a 1% annual rate from April through June, down from a 1.3% prior estimate, revised Commerce Department figures showed.

Fed chairman Ben Bernanke, speaking at a conference in Wyoming, said the central bank still has tools to spur the economy without signalling whether policy makers are likely to deploy them. Another report showed consumer sentiment this month fell to the lowest level since November 2008 amid financial-market turmoil and political wrangling over the budget deficit.

“The consumer is clearly unnerved,” said John Herrmann, senior fixed-income strategist at State Street Global Markets LLC in Boston. “With growth so tepid and the economy so fragile, any kind of shock could tip us over into a double-dip recession.” Stocks erased early losses after Bernanke’s comments.

The median forecast of 81 economists surveyed by Bloomberg News called for a 1.1% increase in GDP. Estimates ranged from 0.3% to 1.6%.

Combined with the 0.4% annual rate of growth in the first three months of the year, the past two quarters were the weakest of the recovery that began in mid 2009. At $13.26 trillion, GDP has yet to surpass the pre-recession peak.

The report also contained positive news as corporate profits grew and wages and salaries were revised up at the start of the year to show the biggest gain in more than four years. “Consumers don’t look like they’re in much of a mood to buy,” said Robert Brusca, chief economist at Fact & Opinion Economics in New York. “The economy continues weaker than we thought. It looks like it’s losing momentum.”

Consumer spending, about 70% of the economy, grew at a 0.4% annual rate in the first quarter, the smallest gain in more than a year. Nonetheless, the reading was revised up from the 0.1% previously estimated, reflecting more outlays for financial services, insurance and health care, Frida’s GDP report showed.&&

Lack of jobs is discouraging shoppers. Payrolls grew by about 95,000 in August, according to the median forecast of economists. That would compare with 117,000 in July which brought the average gain over the past three months to 111,000. Employment gains averaged 204,000 in the first four months of the year.