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U.S. economic growth is weaker than expected

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Jeremy Hobson: The Democratic Senate has voted down a Republican plan that passed the House just hours ago. The plan would have raised the nation’s debt ceiling in exchange for a balanced budget amendment to the constitution.

And so, with the bill’s defeat, we are right back to where we started from. In a word: uncertainty.

We did get one piece of certainty
from the government today, though. The Commerce Department said the U.S. economy is only growing at a rate of 1.3 percent a year.

Keep in mind, that as recently as a few months ago, economists were predicting growth of twice that much. And the lower number comes with consequences, as Marketplace’s Jeff Horwich reports.

Jeff Horwich: Well, at least we solved the puzzle of the jobless recovery. For Wharton School of Business economist Justin Wolfers, that’s one consolation from the fact that GDP barely grew last quarter. It turns out the numbers for the previous quarter — and the whole recovery to date — were also worse that we thought. Wolfers has a new term for what we’re in: The “Recovery-less” Recovery.

Justin Wolfers: In fact it may not even be a recovery anymore. If you look at the entire first half of 2011, total income in the economy barely grew faster than the population. So we’re awfully close to actually a recession.

Another recession, that is. Economist Mark Vitner at Wells Fargo says it’s time to reset our expectations for the rest of the year and beyond: for job growth, for our stock portfolios, for consumer spending — which grew just one-tenth of a percent in the last three months. Plus:

Mark Vitner: Inflation is running hotter than they thought it was. Right now, even these relatively low levels of inflation are wiping out almost all of consumers’ purchasing power.

And many in Washington won’t want to hear it, but Vitner says it might be time to reset our expectations for cutting the deficit. Slower economic growth means trillions of dollars in future tax revenues that deficit-cutters were counting on won’t be there. The lower GDP numbers are ammo for those arguing there could not be a worse time to try to balance the country’s books — like former White House economic adviser Jared Bernstein.

Jared Bernstein: The need for this government to turn its focus in the short term from the budget deficit to the jobs deficit is very much amplified by this report.

Of course, you can amplify something all you want — that doesn’t mean it will resonate in Washington.

I’m Jeff Horwich for Marketplace.

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