US economy grows at 1.7 percent pace in second quarter

The U.S. economy grew at a faster pace in the second quarter of 2013 than in the first, the Commerce Department reported Wednesday.

Gross domestic product increased 1.7 percent according to an initial estimate of the second quarter of 2013, it said.  

ADVERTISEMENT
However, the Commerce Department also revised downward its real GDP growth for the first quarter. Instead of the 1.8 percent previously reported, it now says the economy grew at 1.1 percent for the first three months of 2013. 

The report contains a comprehensive look back at GDP growth in years past, adding further clarity to President Obama's economic track record.

The department revised GDP growth from 2.4 percent to 2.5 percent for 2010, held it steady at 1.8 percent for 2011, and increased it from 2.2 percent to a strong 2.8 percent for 2012.

All of the numbers remain below historic average. The agency said that from 1929 to present, the average rate of growth is now estimated to be 3.3 percent.

The report coincides with President Obama's most recent push on economic issues. In a speech Tuesday, Obama proposed a "grand bargain" lowering corporate tax rates in exchange for more spending on infrastructure and jobs programs he said would boost the middle class.

Republicans said the revised numbers underscored the need for more free market policies such as tax cuts and reduced regulation.

“Over the four years since the recession ended, the economy has grown at an anemic rate of 2.22 percent — half the average rate of growth during prior recoveries following 1960," Joint Economic Committee Chairman Kevin Brady (R-Texas) said. "Until we close the growth gap with free market-oriented policies, job creation will continue at a slow speed and millions of Americans will continue to suffer unnecessarily.”

Liberals said the report makes the case for reversing automatic spending cuts known as sequestration.

"The most important thing today’s data tells us is that the U.S. economy continues to grow far too slowly ... to reliably improve job prospects, it remains far from healed from the Great Recession, and the root problem remains deficient demand — a problem exacerbated by austerity," the Economic Policy Institute's Josh Bivens said.

Economists had forecast the economy would slow at least slightly in the second quarter, in part, due to the effect of $80 billion in automatic spending cuts that went into effect March 1. 

The Commerce Department, though, said that cuts to federal spending actually slowed in the second quarter compared to the beginning of the sequester.

"Real federal government consumption expenditures and gross investment decreased 1.5 percent in the second quarter, compared with a decrease of 8.4 percent in the first," the report said. 

"The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, private inventory investment, and residential investment that were partly offset by a negative contribution from federal government spending," it continued.

Senate Democratic leaders held a press conference Wednesday to use the figures to call for an end to sequestration.

Democrats' messaging guru Sen. Chuck Schumer (N.Y.) said the numbers show the sequester is “an anchor weight on our economy” and that growth below 2 percent generally means rising unemployment. 

“We’re not even treading water. The water is rising above our nostrils and over our head,” he said. 

He noted that the Congressional Budget Office has said growth would be some 1.2 percent higher without the budget cuts and that ending them now would create or save up to 1.6 million jobs by October 2014.

Schumer called on Republicans to join Democrats in passing a transportation bill on the floor this week that ignores the sequester.

Also on Wednesday, the Federal Reserve is meeting to decide how to eventually stop pumping money into the economy. The weak growth figures helped send U.S. stocks higher in the morning as many investors expected the Fed to extend the life of the stimulus program.

This story was updated at 9:34 a.m. and 11:11 a.m.