Economy Grinds To Halt As Consumers Pull Back

Consumers all but shut their wallets in the second quarter, causing the U.S. economy to grow at a tepid pace.

To make matters worse, growth in the first quarter was much slower than initially thought, according to new government figures released Friday.

"It's quite worrisome as the economy remains at stall speed in the second quarter," said Sal Guatieri, senior economist with BMO Capital Markets. "If that continues, then it would raise the risks of a double dip."

Gross domestic product, the broadest measure of the nation's economic health, rose at an annual rate of 1.3% in the second quarter, the Commerce Department said.

While that's an increase from the revised 0.4% growth rate in the first three months of the year, it is hardly good news. The government originally reported that the economy grew at a 1.9% annualized rate in the first quarter.

The growth in the second quarter was also below the 1.8% increase expected by economists surveyed by CNNMoney.

Dubbed a "soft patch" by economists and even Federal Reserve Chairman Ben Bernanke, the economy's sluggishness was due to a variety of factors that weighed on consumers and businesses.

Higher gas prices for one, hit Americans hard when they peaked at a national average of $3.98 a gallon in May.

Top 10 consumer complaints

Overall, consumer spending, which accounts for roughly 70% of gross domestic product, picked up only 0.1% in the second quarter -- marking a significant slowdown from growth of 2.1% in the first three months of the year.

"The major disappointment in the report was the weakness in consumer spending, and it wasn't just fewer automobiles being sold due to Japan's earthquake. There was broad-based softness in consumer spending." Guatieri said.

It marked the slowest growth in consumer spending since the fourth quarter of 2009.

Looking back further, it also now appears that American consumers had less disposable income than originally thought from 2007 through 2010, whereas corporate profits were revised significantly higher for 2009 and 2010.

The government revised the GDP data back to 2003 and also found the recession was worse than originally thought.

Overall, the theme of the U.S. recovery continues to be one driven by companies holding cash on the sidelines and building up their infrastructure, rather than a recovery driven by consumers.

Americans on Main Street continue to be held back by slow job growth and the housing slump, even as major companies report strong profits and have mostly solid balance sheets.

Where the jobs are

According to the latest GDP report, investment in commercial real estate surged 8.1% in the

second quarter, and business spending on equipment and software rose 5.7%.

Meanwhile, exports rose 6%. The U.S. continues to import far more goods and services than it exports to foreign countries, but because imports grew at a slower rate of 1.3%, that also contributed positively to GDP.

The aftermath of Japan's earthquake and tsunami may have been one of the major reasons import growth slowed, as the U.S. bought fewer auto parts from the country.

Friday's GDP report also sparked cries from economists for lawmakers to act quickly in raising the debt ceiling and agree to a deal to cut the national deficit over the long term.

"We don't expect a recession, but if policymakers drag their feet -- which they are doing -- it will be a little more likely," said Paul Dales, senior U.S. Economist for Capital Economics.

Guatieri said: "If the government does not raise the debt ceiling and is forced to cut back spending and Social Security checks, that could undermine consumer spending even further."

Debt ceiling deadlock: Who will get paid?

That's the $14.3 trillion question as each day ticks closer to next week's debt ceiling deadline and Congress shows no sign of brokering a deal.

If lawmakers fail to raise the ceiling by Tuesday, the Treasury Department has said it will no longer be able to guarantee that it can pay all the country's bills in full and on time.

That's because Treasury will not be taking in enough revenue to cover all the bills coming due in August. And without a debt ceiling increase, it will be prohibited from borrowing new money in the bond market to make up the difference.

So, something will have to give.

The consensus thinking has been that Treasury will prioritize who to pay first and who to put off. And at the top of the list of who gets paid will be investors owed interest on U.S. debt. If the investors aren't paid, that would constitute a default, which would have a host of negative consequences for the country.

Of course, it's possible Treasury may decide it doesn't actually have the authority to prioritize and will instead pay interest owed to bond investors but pay other bills as they come due -- first come, first served, said former Treasury official Jay Powell, who coauthored a Bipartisan Policy Center report on the consequences of not raising the debt ceiling.

Assuming, however, that Treasury believes it has the authority to prioritize, it's not clear yet who will be paid first alongside investors. The Treasury has said it will provide more information as Tuesday approaches, and Republican Sen. Orrin Hatch has requested that the department turn over its plan by 5 p.m. on Thursday.

The plan, however, isn't likely to make anyone feel better.

Will I get my Social Security check?

That's because everyone to whom money is owed besides bond investors have either qualified for federal benefits, provided goods or services to the government, are serving in the military or otherwise work for Uncle Sam. Money will also be due to agencies to which Congress has legally appropriated money to run federal programs.

On deck to be paid every month: retirees, veterans, business owners, federal workers, active-duty soldiers, Medicare physicians and government agencies that need money to keep the lights on, to name just a few.

"While at midnight on August 2nd we don't all turn into pumpkins," White House spokesman Jay Carney said in a press briefing, he described the process of picking who to pay and who to put off as a "Sophie's choice."

How the math might work: The Bipartisan Policy Center estimates that Treasury will be short by about $134 billion for the month of August.

That cash deficit will build steadily throughout the month.

So, on Aug. 3, for instance, the center estimates that Treasury will take in $12 billion in revenue and have to pay out $32 billion, creating a $20 billion cash deficit. Among the biggest bills due that day: $23 billion for Social Security payments, $2.2 billion for Medicare and Medicaid payments, and $1.8 billion due to defense vendors.

On Aug. 4, the group estimates that the cash deficit will increase to $26 billion, with only $4 billion in revenue coming in, compared to $10 billion in bills, the largest of which would be for Medicaid and Medicare.

Come Aug. 5, the cash deficit grows another $5 billion to $31 billion.

By Aug. 15, the Bipartisan Policy Center estimates that the running cash deficit will hit $74
billion. That day the Treasury will take in an estimated $22 billion in revenue and have to pay out roughly $41 billion. The biggest bill that day is a $30 billion interest payment.

Cash on hand: What's not yet clear is how much cash Treasury might have on hand going into August.

The Bipartisan Policy Center estimates it might have enough, in theory, to pay bills in full until Aug. 10.

Even if that's right, however, Treasury may still decide to withhold some payments sooner to preserve cash to ensure it can make interest payments after Aug. 10.

It may also keep some cash on hand to ensure it can make principal payments on bonds coming due after Aug. 10.

Treasury will be able to hold bond auctions to roll over existing debt as it matures -- more than $450 billion is expected to come due in August.

However, if there isn't enough demand for Treasuries because of the uncertainty the political crisis in Washington has caused, those auctions may fail to raise all that Treasury needs to pay the principal due.

So Uncle Sam would have to pony up using the revenue coming in. That would mean even less money available to pay seniors, vets, small business owners and others who are part of the lifeblood of the U.S. economy.

USA Senate Offers $3.75 Trillion Deficit Cuts

A bipartisan group of U.S. senators on Tuesday revived an ambitious budget plan that could provide new ideas for breaking the impasse in Congress over raising the nation's credit limit by August 2.

President Barack Obama threw his support behind the proposal by the "Gang of Six" senators, saying it was broadly consistent with his approach on reducing debt and deficits.

Obama urged Senate Majority Leader Harry Reid, a fellow Democrat, and Senate Republican leader Mitch McConnell to start "talking turkey" about it.

Senate Budget Committee Chairman Kent Conrad, one of the six Democratic and Republican senators who have been working since December on a deficit-reduction plan, said the proposed $3.75 trillion in savings over 10 years contains $1.2 trillion in new revenues.

The group briefed about half of the 100-member Senate and "the response was very favorable," Conrad told reporters.

He said the group asked fellow senators to take 24 hours to look at the proposal and "report back to us."

According to an executive summary of the plan, it would immediately impose $500 billion in deficit cuts, cut security and non-security spending over 10 years with spending caps, make the Medicare and Medicaid healthcare programs operate more efficiently and abolish the Alternative Minimum Tax.

Asked whether the plan could become part of urgent negotiations that link deficit reduction to raising the U.S. government's borrowing authority by August 2, Conrad said: "Could the two get married? Could they get combined at some point? I'm sure that's possible."

But leaders must first find out whether the proposal has enough support in the Senate, he said.

But a senior Senate Democratic aide said, for now, "there are no discussions" on incorporating Gang of Six ideas into legislation to raise the debt limit beyond $14.3 trillion.

TAXES AT ISSUE

Conrad was quick to say that while there are $1.2 trillion in new revenues, the overall plan envisions a $1.5 trillion tax cut that would be achieved through broad tax reforms.

Most Republicans, especially Tea Party members in the House of Representatives, have vowed to block any revenue increases.

The Senate group's hope has been that if the three conservative Republican members embrace revenue increases, the idea could catch fire among other Republicans in the Senate and House -- especially if popular but expensive entitlement programs such as Medicare also shoulder some cuts.

In another politically risky move, the Gang of Six plan would achieve significant savings in healthcare programs, Conrad said. The specific spending cuts would be decided later by congressional committees.

Conrad said a separate measure would reform the Social Security retirement program to stabilize its finances for the next 75 years.

The effort got a boost as conservative Republican Senator Tom Coburn rejoined the group after taking a "sabbatical" in mid-May amid heavy disagreement over Medicare spending cuts. It was not yet clear how Coburn's concerns have since been addressed.

On Monday, Coburn unveiled his own plan to cut $9 trillion in deficits over a decade, including nearly $1 trillion in revenue increases.

Revenue proposals are not likely to include income tax rate increases. Instead, they could center on repealing or rolling back special tax favors such as those for ethanol blenders and companies that operate corporate jets, as well as preferential tax treatment for fund managers.

Those specific decisions likely would be up to House and Senate tax-writing committees, along with broader tax reform questions.

"Probably inevitable" a country will exit euro: George Soros

Billionaire investor George Soros thinks a country will eventually exit the euro zone and urged policymakers on Sunday to come up with a "plan B" that could rescue the European Union from looming economic collapse.

Soros, famous for making $1 billion by betting against the British pound in 1992, did not name any country he thought might exit the currency, but speculation is mounting about the fate of Greece as its politicians struggle to agree more austerity measures demanded by international lenders as the price for staving off bankruptcy.

Soros reiterated his view in a panel discussion in Vienna that the euro had a basic flaw from the start in that the currency was not backed by political union or a joint treasury.

"The euro had no provision for correction. There was no arrangement for any country leaving the euro, which in the current circumstances is probably inevitable," he said.

While he called survival of the European Union a "vital interest to all," he said the EU needed structural changes to halt a process of disintegration.

"There is no plan B at the moment. That is why the authorities are sticking to the status quo and insisting on preserving the existing arrangements instead of recognizing there are fundamental flaws that need to be corrected."

With a debt crisis in some peripheral members testing the EU's cohesiveness at a time of popular disquiet in wealthier countries over bailouts, he said leaders had to adopt measures now to remedy the situation.

"Let's face it: we are on the verge of an economic collapse which starts, let's say, in Greece but could easily spread. The financial system remains extremely vulnerable...

"We are on the edge of collapse and that is the time to recognize the need for change."

Some steps the EU could adopt included creating a larger central budget; directing some of the income from value-added tax or a levy on financial transactions to Brussels; having a European institution guarantee banks, and tripling the size of its bailout fund by topping it up with tax revenue, he said.

Job Jugglers, on the Tightrope

WHEN someone asks Roger Fierro “What do you do?” — which he knows is shorthand for “Where do you work?” — he laughs. Then he says, “I do everything.”

Mr. Fierro, who is 26, has four jobs: working as a bilingual-curriculum specialist for the textbook publisher Pearson; handling estate sales and online marketing for a store that sells vintage items; setting up an online store for a custom piñata maker; and developing reality-show ideas for a production company. So far this month, he’s made about $1,800.

Whereas most 9-to-5ers have some kind of structure in their lives, each workday can be wildly different for him. On a recent day, he worked on and off from 7 a.m. to midnight, making business calls, working on the piñata store’s Web site and visiting the vintage store, among other things. (To maintain his sanity, he made sure to schedule some “me” time from 2 to 4 and 6 to 8.)

“I have eight million things going on,” said Mr. Fierro, who lives in the West Town area of Chicago. “It’s exhausting. Sometimes I just want to take a nap.”

Some portions of the population — especially young, creative types like actors, artists and musicians — have always held multiple jobs to pay the bills. But people from all kinds of fields are now drawing income from several streams. Mr. Fierro, for one, has a degree in international studies and Latin American studies at the University of Chicago.

Some of these workers are patching together jobs out of choice. They may find full-time office work unfulfilling and are testing to see whether they can be their own boss. Certainly, the Internet has made working from home and trying out new businesses easier than ever.

But in many cases, necessity is driving the trend. “Young college graduates working multiple jobs is a natural consequence of a bad labor market and having, on average, $20,000 worth of student loans to pay off,” said Carl E. Van Horn, director of the John J. Heldrich Center for Workforce Development at Rutgers.

“There are two types of people in this position: the graduate who can’t get a full-time job, and the person whose income isn’t sufficient to meet their expenses,” he said. “The only cure for young people in this position is an economic recovery of robust proportions.”

An entry-level salary often doesn’t go very far these days. According to a study by the Heldrich Center, the median starting salary for those who graduated from four-year degree programs in 2009 and 2010 was $27,000, down from $30,000 for those who graduated in 2006 to 2008, before the recession. (Try living on $27,000 a year — before taxes — in a city like New York, Washington or Chicago.)

Many earn even less than $27,000. Maureen McCarty, 23, who graduated from American University in 2010 with a journalism degree, makes $25,000 before taxes as managing editor of TheNewGay.net, a blog focusing on gay issues, with no benefits like health insurance or a 401(k). The salary doesn’t cover her expenses, so she often baby-sits five nights a week for six families in the Washington area.

Without the baby-sitting jobs, she says, she couldn’t afford to live in Adams Morgan, a hip neighborhood in Washington, or take a vacation: “I’m working in online publishing, an industry that is struggling to monetize, so if I want to do anything fun, like take a trip to New Orleans, I have to have additional income.”

Juggling jobs has its perils. “I do sometimes get my schedules mixed up and will double- or even triple-book myself,” Ms. McCarty said. Maintaining a social life can be challenging, and it might consist of “dragging a friend along while I run errands on a Saturday.”

“Sometimes I do get burnt out from all of the juggling, but caffeine, for the most part, keeps me going,” she said. “I try when I get to that point to take some time by myself even if it’s just 30 minutes during lunch.”

All told, Ms. McCarty says, she works 75 to 80 hours a week, a schedule more typical of investment bankers or lawyers aspiring to make partner in a firm — but for just a fraction of the pay.

Between her salary at TheNewGay.net and the $5,000 she makes at her various baby-sitting jobs, Ms. McCarty has a pre-tax income of $30,000, or about $2,500 a month. More than $700 a month goes to the apartment she shares with two roommates.

Some months, however, when she doesn’t have enough baby-sitting jobs lined up, Ms. McCarty has to make that “horrible phone call” to her parents to tell them that she can’t make her rent.

LOUISE GASSMAN, 28, has a rotating schedule of multiple jobs: as an actress; as an assistant to dance instructors at the Circle in the Square and Juilliard schools; as a baby-sitter; and in a variety of administrative roles and as a spinning instructor at SoulCycle, an indoor cycling studio in New York.

Ms. Gassman’s monthly income, which can vary greatly depending on whether she books an acting job, ranges from $1,800 to $4,000. Some months, almost all of her income goes to the $1,450 rent on her 290-square-foot studio on the Upper West Side of Manhattan. Whatever is left after essentials goes toward paying off her remaining $16,000 in college loans.

“I worry about money all the time,” Ms. Gassman said. “I live on a really tight budget, and I live paycheck to paycheck.”

Periodically, the accountant who cuts her check at SoulCycle reminds her that someone her age should be putting away $300 a paycheck for retirement, an amount that is sometimes almost half of her pay. “I’m like, retirement?” she asks. “Then I have the ‘Oh my God, Oh my God’ feelings.”

Ms. Gassman has come up with creative ways to save money. She has a policy not to spend $5 bills and instead puts them in a Tupperware container. So far, she’s been able to use this cash to pay for a new air-conditioner, for three plane tickets, and for her dog to be neutered.

Mia Branco, 23, says she is always worried about money, even though she also works four jobs. She is the house manager at the Discovery Theater at the Smithsonian Institute in Washington, teaches drama and music at Imagination Stage in Bethesda, Md., supervises the box office at the Woolly Mammoth Theater Company and works as a nanny.

Ms. Branco says she logs 40 to 50 hours a week, including travel time, and takes home $1,300 in a good month.

Still, Ms. Branco, who graduated magna cum laude with a degree in musical theater from American University in 2009, says she feels lucky to be employed at all. “The majority of the jobs I have right now are because people were laid off and they didn’t want to hire back full-time employees,” she said. “My willingness to have a hodgepodge schedule makes me more marketable.”

But very few part-time employers offer health insurance, and job jugglers tend to worry: What happens if I become really sick or get into an accident?

At least Ms. McCarty is covered through her parents under the new health care law that allows anyone under 26 to stay on their parents’ insurance.

Mr. Fierro still receives insurance from a teaching job he used to have, but it runs out in August. He doesn’t know what he’ll do after that.

Ms. Branco pays $89 a month for very basic health insurance that has a high deductible, the kind of plan that she says makes her “bank on not getting sick.”

Ms. Gassman, who does not have health insurance and hasn’t had a physical since 2004, says she is extra careful when crossing the street because anything medically catastrophic is simply not an option right now. “I can’t afford to get hit by a taxi,” she said.

ON the brighter side, when or if these job jugglers get on a career path, they may offer an attractive skill set: they are expert multitaskers, hyper-organized and often very knowledgeable in technology. Having multiple jobs is an exercise in mental dexterity.

Ms. Branco says that because of her four jobs, which require skills as diverse as developing lesson plans and mastering an online ticketing system, she has become more adept at dealing with a wide range of people and situations: “I’ve learned to be very adaptable, because one day I’m corporate, the next day I’m start-up, and the next day I’m nonprofit.”

Mr. Fierro describes himself as “MacGyver.” He might have to transport some furniture, “read and synthesize documents, find obscure bits of information on Google and give presentations in Spanish, all in one day,” he says.

But beware: Too much multitasking makes it harder to sustain attention, according to Kirk Snyder, an assistant professor of communications at the Marshall School of Business at the University of Southern California, who researches the changing workplace values of Gen Y.

“I think being focused on more than one professional pursuit at the same time makes it easier to give up on those pursuits that take more effort or have a longer payoff curve because there are always other options to focus on,” he said.

More damaging, however, may be the economics. A national study by the Johns Hopkins Institute for Policy Studies found that young women who worked primarily in part-time jobs did not make higher wages in their 30s than in their 20s.

“The study was clear. Women don’t benefit wage-wise from working part time,” said Andrew Sum, director of the Center for Labor Market Studies at Northeastern University and a co-author of the study. The reason is that part-time jobs generally provide fewer training opportunities and often don’t put workers on a track for advancement.

More college graduates are working in second jobs that don’t require college degrees, part of a phenomenon called “mal-employment.” In short, many baby-sitters, sales clerks, telemarketers and bartenders are overqualified for their jobs.

Last year, 1.9 million college graduates were mal-employed and had multiple jobs, up 17 percent from 2007, according to federal data. Almost half of all college graduates have a job that doesn’t require a bachelor’s degree.

The goal for most, Mr. Sum said, is to be upgraded to full-time jobs. “That is where there is the most payoff for a college degree,” he said.

But full-time jobs don’t suit everyone. Ms. Gassman, for example, has been offered a full-time job at SoulCycle, complete with full benefits, but she doesn’t want it. “I wouldn’t be able to go on auditions in the middle of the day,” she explained. “Of course, it stresses me out not to have health insurance, but what is my choice? Work in an office and be unhappy? Being happy is a superhigh value to me.”

Mr. Fierro is much happier now than when he was working as a bilingual reading specialist for a public school in Chicago. “I was working 12 hours a day and making $38,000 a year and it wasn’t making a dent in the $120,000 in loans I had to pay off. Plus, I was miserable.”

Mr. Fierro, who calls himself an “aesthetic consultant,” would ultimately like to create his own line of merchandise, along the lines of Marc Jacobs. He is optimistic that he is more likely to achieve his goal by working on many projects than if he held a traditional job.

Ms. Branco says that while she is often exhausted and hasn’t had two consecutive days off in months, she isn’t ready to commit to one employer. “The jobs are allowing me to wander and figure out what I really want to do,” she said.

Professor Snyder at Southern Cal doesn’t see multiple job-holding as a trend that will disappear anytime soon.

“The likelihood of this generation devoting their professional life to just one job or career at the same time is simply counterintuitive to their worldview,” he said. “I think we would be seeing this generation pursuing multiple jobs and careers at once even in a robust economy.”

Still, is job-juggling really sustainable, particularly when the next stage of life hits and there may be a mortgage and children?

Ms. McCarty doesn’t think so. She is looking for an end to her 80-hour weeks and meager paychecks. “I don’t want to be 30 and working a bunch of small jobs so I can pay my bills,” she said.

Shoplifting on the rise: A sign of recovery?

That latest sign of an economic recovery: shoplifting is back.

Typically, an increase in shoplifting is believed to be an indicator of tough economic times. But a recent study by the National Retail Federation, which found that retail theft by employees is on the rise, says the recent spike in stealing could very well mean the economy is on the upswing.

According to the National Retail Federation's security survey, inventory shrinkage -- which is the retail value of lost merchandise -- cost retailers more than $37 billion in 2010, up from $33.5 billion in 2009.

The losses were largely due to employee theft, the survey said, followed by shoplifting by customers, administrative error and vendor fraud. The survey polls roughly 140 retailers year after year.

"A lot of times shoplifting is an inside job," said Jim Angel, associate professor of finance at the McDonough School of Business at Georgetown University.

When the economy hit its lowest point, employees were primarily consumed with keeping their jobs, said Richard Hollinger, a criminology professor at the University of Florida and author of the security survey.

Workers were deterred from stealing simply because even minimum-wage jobs in retail were scarce. "They were so worried about their future, their families and paying the mortgage, they realized this is what is keeping their family afloat," Hollinger said.

Shoplifting rates fell significantly in 2007. But as the recovery takes hold, shoplifting rates are on the rise again.

As employees feel more secure in their positions, they may be more inclined to take some risks, Angel said.

At the same time, employers drastically reduced head counts during the recession, which left fewer employees on the floor with heavier workloads in the early stages of the recovery. As workers feel more disgruntled, theft becomes "very tempting," Hollinger said, "especially if they feel that the company can afford it and they're being paid minimum wage."

"When those inequities build up, rationalizing theft is fairly common," he said.

"Employee theft is something every retailer faces, and we are no different," said Tina Sellers, the vice president of Loss Prevention at video game retailer GameStop, a company that has been particularly vocal about the problem of shoplifting.

Why chronic comparing spells career poison

Inventory losses at retailers reached it's highest point in 1994 when the U.S. economy was growing at a very fast pace and has steadily declined since -- until the uptick last year, according to the National Retail Federation's data.

Other factors contributing to the decline in shoplifting in previous years have been improved security measures and the demise of CDs and DVDs, which once drove stealing to new heights.

Now that most music and movies are primarily downloaded, the resale market for those items has largely dried up, Hollinger said.

Economic growth still weak

The U.S. economy was a little stronger than originally believed but still struggling in the first three months of the year, according to the government's final reading on the first quarter.

Gross domestic product, the broadest measure of the nation's economic activity, grew at an annual rate of 1.9% in the quarter, the Commerce Department reported Friday.

That's up from the previous estimate of 1.8%. Economists surveyed by Briefing.com had forecast no change from the prior reading.

But growth of 1.9% is still disappointingly weak, and there is widespread concern that the economy has slowed even more since the end of March. Hiring ground to a near halt in May and consumer spending and manufacturing slowed.

New economic stimulus: lower oil prices

Economic growth of 3% or better is generally considered necessary to spur the level of hiring by employers needed to make a big dent in the unemployment rate. The U.S. economy typically grows at a 3.6% rate during an economic expansion.

On Wednesday, the Federal Reserve significantly cut its economic growth forecasts, and raised its unemployment and inflation estimates for the rest of this year as well as for 2012. Fed Chairman Ben Bernanke said he was frustrated by the fact that declines in unemployment will be slow and painful.

Another drag on growth in the first half of the year was a jump in the price of food and energy, which sapped consumers' ability to spend more on other goods.

Since the GDP reading is adjusted for inflation, higher prices means the economy has to grow faster just to keep pace with inflation.

Many economists have been cutting their forecasts for growth in the second quarter and the rest of 2011.

A CNNMoney survey earlier this month found that top economists are forecasting growth of just 2.3% in the second quarter, which is down from estimates of 3% only a month earlier.

Economists also see a greater risk of another recession, although they still believe that's a long-shot.

"Recent data suggests that the economy has slowed further since the first quarter, and some leading indicators are pointing to softness in the latter half of the year as well," said Jim Baird, chief investment strategist for Plante Moran Financial Advisors.

Bernanke said Wednesday he believed that some of the current weakness in the economy is due to temporary factors, such as the spike in oil prices following political turmoil in the Middle East and supply chain disruptions caused by the Japanese earthquake.

But he admitted he couldn't say how much of the weakness is due to those temporary factors and how much are more serious, longer-lasting issues such as consumers still struggling with too much debt and continued weakness in housing.

Economists said Friday's report leaves that key question still unanswered.

"We are not yet prepared to write-off a solid second half economic performance, particularly if the labor market regains momentum next quarter," wrote Carl Riccadonna, senior U.S. economist for Deutsche Bank.

"In the near term, it will be critical to determine if economic output in general and factory output in particular are stabilizing as the supply disruptions ease, and also if households and small businesses respond swiftly to lower gas prices."

John Silvia, chief economist with Wells Fargo Securities, also said he's still hopeful that the economy could rebound in the second half of the year.

But with growth so weak, he's worried that the economy would be vulnerable to any other shocks that might occur, such as a default of Greek sovereign debt, a new oil price spike due to more political turmoil in the Middle East or a U.S. government shutdown due to the debate over raising the debt ceiling.

"You can't get a shock to the system and walk away from that," he said.

A rebound is a best case scenario, Silvia added. But it's been a while since the economy enjoyed a best case scenario

Is U.S. Economy like Greece?

EW YORK (CNNMoney) -- Deficit hawks often cite Greece's debt nightmare as a cautionary tale for the United States.

But is the United States really like Greece?

The differences between the countries, after all, give the United States some built-in advantages when it comes to managing its debt.

The U.S. economy? Gargantuan. Greece's economy? Tiny.

Plus, the United States' earning capacity is greater since it has a more diverse economy than Greece does, said Barry Anderson, who used to run a budgeting and public expenditures division at the Organization for Economic Cooperation and Development.

The pain of Greece's crisis

There are also big differences in the countries' currencies.

The dollar is the world's reserve currency and is managed by a single government.

The euro, by contrast, is used by 15 sovereign countries. Therefore, Greece's monetary policy is set not according to Greece's needs but by the needs of stronger economies -- especially Germany -- that prefer higher interest rates as a bulwark against inflation.

The OECD, meanwhile, estimates that U.S. net debt will reach 75% of the country's economy this year. That number includes federal, state and local debt but excludes debt owed to government trust funds such as Social Security.

Greece's debt, by contrast, will be around 125%.

"The real fundamental similarity is trend. Both [countries' fiscal situations] are bad and getting worse," Anderson said.

That's because both the United States and Greece have aging populations and mature economies that aren't likely to grow as much as they have in the past.

Simply assuming that the United States will remain forever immune from the perils of too much debt is not a winning strategy, deficit hawks warn.

Of course, that's a hard case to make when investors embrace Treasuries every time they get spooked by turmoil in Europe. Events in Greece in recent days have driven the 10-year Treasury yield below 3%.

In other words, the United States continues to get the benefit of being a "safe haven" compared to the rest of the world.

But experts believe that investors won't always give Americans the benefit of the doubt.

"The markets do react late, but when they react they react pretty sharply," said Carlos Cottarelli, director of fiscal affairs at the International Monetary Fund, during a Committee for a Responsible Federal Budget conference this week.

A little over a year ago, investors' fears that Greece would ever default were considerably lower than they are today. So it's not surprising that the yield on 10-year Greek bonds is now pushing 18%, up from 6% at the start of 2010, according to Bloomberg markets data.

But even if U.S. rates don't rise soon -- and some say they won't because investors fear slower economic growth -- that doesn't mean markets can't find other ways to hurt the United States, Anderson said.

Investors might choose to punish the dollar if they start to believe Congress doesn't have the political will to do what's required to put the U.S. budget on a more sustainable track.

And a substantially weaker dollar would have all sorts of negative repercussions, including a possible credit downgrade from ratings agencies, said Michael Pond, managing director of fixed income strategy at Barclays Capital, at the CRFB conference.

The bottom line: The U.S. is not Greece in many ways. But it's also not immune from the punishing effects of debt.