U.S. economy on slow side but getting by

LITTLE ROCK — The U.S. economy expanded at an annual rate of 2.4 percent in the second quarter, after expanding a revised 3.7 percent in the previous three months, the Commerce Department reported Friday.

The growth in the nation’s gross domestic product, the value of all goods and services produced, fell within the range of analysts’ expectations.

“The economy is muddling through,” said Ethan Harris, head of North America economics at Bank of America-Merrill Lynch Global Research in New York. “We’re probably not going to see a really strong number for a while. We need to see some pickup in job growth.”

Uncertain about the strength of the recovery, companies are sitting on record piles of cash rather than using the money to hire new workers and expand operations.

“The poor job picture is the Achilles’ heel of the economy,” said Sung Won Sohn, a professor of economics and finance at California State University-Channel Islands in Camarillo, Calif. “Reflecting the lackluster job market, consumers have become more cautious about spending.”

Caterpillar Inc., DuPont Co. and Microsoft Corp. are among companies reporting strong second-quarter earnings in the past two weeks yet they aren’t ready to bulk up their work forces.

With the fall elections looming, Republicans in Congress and some Democrats have shown little inclination to pass additional stimulus measures that would add to the deficit in order to speed up the recovery.

The Federal Reserve is exploring new steps to bolster the recovery in case the economy flashes danger signs of sliding back into recession or of a dangerous bout of deflation.

Policymakers could cut the interest rate paid to banks on money parked at the Fed to zero. They could also promise to keep rates at record lows for longer, or revive programs to buy mortgage securities or government debt.

The economy has now grown four quarters in a row, but economists still fret about the possibility that it will slip again into a recession.

“The odds are we’ll muddle through without backstepping into recession,” said Mark Zandi, chief economist at Moody’s Analytics. “But the odds are uncomfortably high that I’m wrong.”

Investors at first reacted to the GDP report with disappointment but seemed less concerned as the day wore on, particularly when a reading on consumer sentiment came in higher than expected. The Dow Jones industrial average closed virtually unchanged.

The report also showed that the economy grew faster early this year than initially thought. The 3.7 percent annual rate of growth from January through March is up from first estimates of 2.7 percent.

The economy began to grow in the third quarter of last year after having suffered the worst recession since the Great Depression. And in the final quarter of 2009, the economy surged at a 5 percent pace. That was the high point of the rebound so far.

Much of the expansion was powered by the government’s $862 billion stimulus package of tax cuts and spending. Also, companies helped energize growth with a burst of spending to replenish inventories that had been reduced during the recession.

Now those forces are fading and doubts are growing about whether the private sector alone can sustain the recovery. Businesses have not been adding enough jobs to keep up with population growth, and unemployment is stuck near 10 percent.

People seem to be saving more money, perhaps because their homes are worth less these days, said Bill Gullickson, chairman of McLaughlin, Gormley King Co. of Minneapolis, which makes insecticides. He has no plans to add to his work force of about 100.

“A lot of people feel poor, and they are acting that way. Times are tough,” he said.

Consumer spending, usually the lifeblood of the economy, is rising at an anemic rate. Instead, Americans are saving more of their disposable income now than they have in about a year.

The federal government increased its spending at the fastest pace in a year. But economists expect that growth to slow, too. And state and local governments are grappling with historic budget shortfalls.

In the revisions issued Friday, the government estimated that the economy shrank 2.6 percent last year. That’s worse than the 2.4 percent decline originally estimated. Both cases represented the sharpest economic contraction since just after World War II.

“It appears that the recession was even worse than previously thought,” Martin Regalia, the chief economist for the U.S. Chamber of Commerce, said in a statement. “Thus, while the recession was somewhat deeper than originally thought, the recovery was also much more tepid than previously thought, and is slowing rather than accelerating.”

It takes about 3 percent growth in gross domestic product to create enough jobs to keep pace with population growth, economists say. And economic growth would have to equal 5 percent for a fullyear to lower the unemployment rate by a single percentage point.

The government will revise its estimates for second quarter economic growth twice. The first estimate is missing final figures on trade and how much businesses invest in their inventories.

Information for this article was contributed by Jeannine Aversa and David R. Martin of The Associated Press; by Catherine Rampell of The New York Times; by Timothy R. Homan of Bloomberg News; and by Kevin G. Hall of McClatchy Newspapers.