BOSTON ( TheStreet) -- While Americans are focused on the impasse in Congress that has turned the budget-making process into an international crisis, the nation's already-fragile economy may be heading toward another recession.
As an example of how bad things are, the Commerce Department yesterday said gross domestic product (GDP) growth -- a measure of all goods and services produced in the U.S. -- rose at a meager 1.3% percent annual rate in the second quarter, well below economists' projected 1.8% growth. A year ago, the economy expanded 3.8%.
Meanwhile, Republicans and Democrats are still at odds over budget cuts to make before raising the $14.3 trillion debt ceiling. There was no new agreement heading into this weekend, and President Barack Obama pleaded with Congress to work out a compromise. The standoff, viewed as largely partisan, may dent consumer confidence even more, economists said.
That's troubling because consumer spending, which makes up about 70% of GDP, was already a big part of the underperformance last quarter. It fell to a 0.1% rate of growth, the weakest since the recession ended two years ago.Mark Zandi, chief economist for Moody's Analytics, now projects that GDP will end 2012 almost $75 billion lower than previously projected, which is almost half a percentage point of GDP, and that's due largely to expected consumer-spending cutbacks. Contributing to skepticism about the government's ability to accurately monitor the economy, the Commerce Department yesterday dramatically cut its revised GDP growth measurement for the first quarter to 0.4% from its previously reported 1.9% and then cut the growth rate for the fourth quarter of 2010 to 2.3% from its previous 3.1% estimate. And on top of that, the government department now says it recalculated data from the 2007-2009 recession and found that the economic decline was much worse than it had previously reported, with economic output declining by 5.1% instead of the reported 4.1% in the period. Scott Brown, chief economist at Raymond James in St. Petersburg, Fla., said the revisions are a "real shock" because the economy clearly has a lot less momentum than the nation was led to believe. "So, obviously, it's a big concern, and then we have this nonsense on the debt-ceiling issue, which is totally unnecessary but it has created a crisis that we're seeing the economic implications of now." Paul Larson, an equities market analyst for Morningstar, said the lower GDP numbers are especially disappointing given that "in the first quarter we were in the heart of QE2