The GDP grew at an annual rate of only 1.3 percent in the second quarter of 2011, announces the Commerce Department, which also revised first-quarter growth down to 0.4 percent

If there is not a deal by early next week, the government will have to prioritize its spending. The debt may get downgraded, and we could have all sorts of problems,” says Mr. Brown. In the report released on Friday, the Commerce Department sharply revised downward its estimate of first-quarter growth, from an annual rate of 1.9 percent to 0.4 percent. “In other words, the economy has barely budged this year,” wrote economist Joel Naroff, of Naroff Economic Advisors in Holland, Pa A major reason for the slow growth is a retrenchment by state and local governments, reflecting lower sales tax receipts and the reduction of the 2009 federal stimulus money. According to the report, real state and local governmen consumption and expenditures decreased 3.4 percent – the same decrease as in the first quarter. Before Friday's report, economists had expected the US economy would rebound from the slowdown in auto production due to the earthquake and tsunami in Japan and the high gasoline prices. Instead, “we had some improvement, but not enough to offset other factors, especially the lack of spending by consumers and the lack of new hiring,” says Brown. Part of the reason for the slowdown in consumer spending – which rose just 0.1 percent – was related to the dearth of Japanese vehicles to buy. Auto vehicle purchases declined by 23 percent in the quarter, according to an analysis by Austan Goolsbee, chairman of the Council of Economic Advisers in Washington. That should start to improve, since many Japanese automobile manufacturers are now getting closer to normal production. However, gasoline prices are now up 17 cents a gallon over the past month, according to AAA. With higher gas prices, lower stock prices, and the political maneuvering in Washington, consumer sentiment is eroding. On Friday, the Thomson Reuters/University of Michigan survey of consumers for July found consumer confidence has dropped to the lowest level in two years. The uncertainty surrounding the debt-ceiling negotiations contributes to the decline in confidence, according to Barclay’s Capital Research. “The percentage of consumers describing economic policy as doing a ‘poor job’ has recently spiked,” said the report on Friday. FOR MORE DETAILS CLICK HERE >>>