US economy posts sluggish 1.2 percent growth

US economy posts sluggish 1.2 percent growth

The U.S. economy grew at a sluggish pace during the April-to-June quarter with drops in business spending and inventories.

The Commerce Department said Friday that the economy expanded at an annual rate of 1.2 percent in the second quarter, up slightly from 0.8 percent during the first three months of the year.

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The January-to-March figure was revised down from 1.1 percent. 

Economists had estimated that gross domestic product would come in around 2.6 percent. 

The lower-than-expected figure could spark a fresh debate between Democrats and Republicans on the campaign trail about who is best equipped to grow the economy. 

Consumer spending, which represents about 70 percent of activity, increased at a healthy 4.2 percent pace in the spring — the best showing since the end of 2014 — after posting only 1.6 percent growth the first quarter.

But businesses were slow to restock through the spring, with inventories falling $8.1 billion, the first drop in nearly five years, and knocking off 1.16 percentage points from the growth figure.

Business spending fell 2.2 percent, the third straight quarterly drop.

After dismal jobs growth in May, the labor market bounced back in June, adding 287,000 and shaking off broader concerns about the trajectory of the economy.

The report comes two days after the Federal Reserve kept interest rates at current levels but acknowledged that the economy is improving — opening the door to a possible rate hike in September.

Trade added 0.23 percentage points to growth.