Economy still stuck in low gear

Article by: NELSON D. SCHWARTZ , New York Times
Updated: August 29, 2012 - 10:34 PM

Second-quarter growth was revised upward to 1.7%, keeping pressure on Fed.

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A worker at a Ford Motor Co. stamping plant in Chicago Heights, Ill., moved a stack of Lincoln MKS body sides. The U.S. economy grew at a 1.7 percent annual rate in the April-June 2012 quarter.

Photo: Charles Rex Arbogast, Associated Press - Ap

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Government data released Wednesday suggested the economy continued to muddle along at a subdued pace, highlighting the pressure on Ben Bernanke, the chairman of the Federal Reserve, to come up with bolder policy prescriptions Friday when he delivers a widely anticipated speech in Jackson Hole, Wyo.

With the economy looming as the leading issue in the presidential race, Bernanke faces a delicate decision. Though economic growth remained weak by historical standards, fears that the United States is slipping back into a recession have abated while previous rounds of easing have generated only modest benefits.

More aggressive steps to stimulate the economy will also draw criticism from Republicans, who have demanded that Bernanke forswear additional monetary moves for now. Mitt Romney, the Republican nominee, said last week that he was opposed to a third round of monetary easing, which is intended to put downward pressure on interest rates and encourage businesses and consumers to borrow and spend.

Economic growth remains too anemic to bring down the nation's stubbornly high levels of unemployment, leading to some calls for action by the Fed. Most economists expect Bernanke to wait until after Federal Reserve policymakers meet on Sept. 12-13 to announce major actions, but the latest reports underscore just how tepid economic growth remains.

The Commerce Department revised upward its estimate of economic growth in the second quarter to an annual rate of 1.7 percent, from an earlier estimate of 1.5 percent. That growth still represents a deceleration from the 2 percent pace in the first quarter. The economy needs to grow at 2.5 percent to 3 percent a year to substantially reduce unemployment, which is at 8.3 percent.

The revision was driven by stronger export growth, along with fewer imports than originally estimated and a slight uptick in personal consumer spending. Inventory growth cooled, highlighting continued caution by businesses about the overall outlook.

"It's not disastrous, but it is one reason the Federal Reserve is on high alert," said Julia Lynn Coronado, chief economist for North America at BNP Paribas.

In another sign of tepid economic conditions, a Federal Reserve report issued Wednesday afternoon found that the economy continued to expand gradually across the country in July and early August, with slower growth in parts of the East Coast.

The Fed survey of 12 regional bank districts, known as the "beige book," also found that employment held steady or grew slightly nationwide.