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US Economic Recovery Slows Further

(c) Sky News 2012

President Barack Obama's re-relection campaign has been dealt a blow on confirmation the US economic recovery eased for the second consecutive quarter.

Annualised GDP growth of 1.5% was measured between April and June - down from an upwardly revised figure of 2% in the previous quarter.

There was a positive market reaction as the performance matched analysts' expectations but with the economy the key battlegound ahead of November (Stuttgart: A0Z24E - news) 's presidential election, the slow erosion of growth will be of great concern for Mr Obama as he prepares to face the Republican, Mitt Romney.

However, few economists believe there is much Government can do given the strain on US finances while some are even talking of the economy falling off a "fiscal cliff" at the year's end when tax increases and deep spending cuts are due to take effect.

Weaker hiring, nervous consumers, sluggish manufacturing and the overhang of Europe (Chicago Options: ^REURUSD - news) 's debt crisis all point to the prospect of a new recession, with a flat performance now forecast for the second half of the year.

Consumers and businesses cut back on their spending sharply in the last quarter - with many worried that looming cuts because of the huge US deficit - coupled with the eurozone crisis - would hit investment further.

Americans bought fewer cars, computers and other long-lasting manufactured goods though spending on services increased.

Consumer spending, which accounts for 70% of economic activity, was offset somewhat by a slightly smaller drag from the government.

Spending by governments (local and national) fell at an annual rate of 1.4% in the second quarter, just half of the 3% of decline in the first quarter.