The U.S. economy slowed to a crawl in the second quarter as consumer spending stalled amid higher gasoline prices.
The Commerce Department's first estimate of second quarter growth, released Friday, came in at a 1.3 percent rate, much lower than the consensus estimate of around 1.8 percent.
What's more, first-quarter output was sharply revised down to a 0.4 percent pace from 1.9 percent.
The data underscore what's at stake as lawmakers and the administration go down to the wire on negotiations to increase the nation's borrowing limit so the government can pay its bills and avoid what some say could be a catastrophic downgrade of the pristine U.S. credit rating.
Economists have warned that a debt default could push the fragile economy over the edge.
"The implications of more rancorous foot dragging would be bad for an economy already in a precarious state," said Julia Coronado, chief North America economist at BNP Paribas in New York. "Uncertainty continues to tax an already fragile recovery."
President Barack Obama urged Republicans and Democrats to resolve the issue and vowed to work through the weekend with top lawmakers.
"The power to solve this is in our hands on a day when we've been reminded how fragile the economy already is," the president said in remarks the White House on Friday.
“Keep in mind, if we don’t do that, if we don’t come to an agreement, we could lose our country’s AAA credit rating, not because we didn’t have the capacity to pay our bills -- we do -- but because we didn’t have a AAA political system to match our AAA credit rating,” the president said.
Stock markets, which already had a case of the jitters from the debt impasse, tumbled at the opening bell, but cut some of their losses as the session progressed after the S&P 500 hit technical support.
Economists had expected the economy would show signs of perking up by now with Japan supply constraints easing and gasoline prices off their highs, but data have disappointed. This and the sharp downward revisions to the prior quarters suggest a more troubling and fundamental slowdown might be underway.
"The second quarter disappointed, but the first-quarter downward revision is more disturbing. It advances the pangs of concern. The debt ceiling nonsense is not going to help us. We're already in an economy that is subpar," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
"Gasoline price increasing from $3 to $4, that really slapped the consumer back considerably."
Consumer spending, which accounts for about 70 percent of U.S. economic activity, decelerated sharply to a 0.1 percent rate -- the weakest since the recession ended two years ago.
Spending grew at a 2.1 percent pace in the first quarter.
Data released on Friday showed the 2007-2009 recession was much more severe than prior measures had found, with economic output declining a cumulative of 5.1 percent instead of 4.1 percent.
