Economic growth has slowed down sharply in the USA with consumer spending at its weakest level in two years. Growth in the USA was 0.4% between January and June 2011 with the USA’s economy growing at an annual rate of just 1.3% between April and June compared with 2.3% for the last quarter of 2010. Also the total loss of economic output in the 2007-2009 recession is now thought to have been 4.1%.This data has caused shares to fall with the Dow Jones falling by 130 points and the FTSE 100 index down 84 points to 5789.
Nick Parsons head of research UK and Europe and global of FX National Australia Bank says ‘‘It is hard to conclude other than that the US economy is in deep trouble’’ with ‘‘A very weak labour market, falling real incomes and house prices are hardly the basis for a sharp pickup in growth through the summer months and when a compromise agreement over the debt ceiling is finally reached, it is sure to contain measures to reduce the growth of government spending’’. Economists have said the data could prompt the Federal Reserve to restart its Quantitative Easing (QE) programme to put more money into the economy.
James Knightley Senior Economist at ING has said ‘‘the recession was deeper and started earlier than previously thought. This further reduces the prospect of any Fed policy tightening and offers some support to those arguing the case for QE3’’, the USA’s economy contracted by 0.3% in 2008 and in 2009 by 3.5%, if the current rate of unemployment of 9.2% is to be reduced the USA needs a growth rate of at least 2.5%.‘‘At the time, we were thinking that the numbers weren't as bad as what we seeing’’. Carl Riccadonna an economist at Deutsche Bank in New York says ‘‘Now we know that the recession was deeper than we thought’’ the contraction in real terms was 5.1%.