By Vicki Needham - 07/27/12 01:07 PM EDT
The U.S. economy grew at an annual rate of just 1.5 percent in June, prompting worries of an economic stall.
The entrenched European financial crisis and the looming fiscal cliff of U.S. tax hikes and spending cuts at the end of the year appear to be holding back growth as businesses decide to put off new investments.
The sluggish growth is bad news for President Obama, given the economy's central role in the presidential campaign.
Friday's report from the Commerce Department did revise growth up from 1.9 to 2 percent in the first quarter, but that isn't enough to make a dent in the 8.2 percent unemployment rate.
Spending, which represents 70 percent of all economic activity, fell to 1.5 percent from 2.4 in the first quarter. But consumers also saved more, with the savings rate back up to 4 percent from 3.6 percent in the first three months of the year.
Mark Zandi, chief economist with Moody's Analytics, said Thursday that increased saving could give consumers more "financial firepower" down the road. Consumers picked up their saving during the recession.
The outlook for the rest of the year isn't great either, with economists predicting similar outcomes for the year's final six months.
“This is the sign of an economy stuck in neutral, as well as a sign that policymakers must act to provide more support to the economy if they want it to grow fast enough to start putting sustained downward pressure on today’s still too-high unemployment rate," said Josh Bivens, research and policy director at the Economic Policy Institute.
As the economy struggles, Congress is running through a swath of politically charged votes over the Bush-era tax cuts, which expire at the end of the year.
The White House and many congressional Democrats are pressing for the renewal of income tax breaks for those workers making $250,000 a year or less, arguing that the cuts for wealthier earners should be allowed to expire.
Meanwhile, Republicans are pressing for a one-year extension of all tax breaks, saying without them jobs will be lost and the economy will remain mired in the doldrums.
There were other revisions in data for the past three years — the economy contracted 3.1 percent in 2009, slightly less than the 3.5 percent previously reported.
In 2010, the economy grew at a 2.4 percent rate, down from 3 percent, with growth in 2011 at 1.8 percent instead of 1.7.