You’re the Boss Blog: Today in Small Business: Founded During the Recession

Court Says Paralyzing Man During Drug Search Violated Rights

Police suspected that a man named Felix Booker was concealing contraband inside his body. They arrested him on a drug charge and later, against his will, a doctor paralyzed him for eight minutes to take a look.

DealBook: UBS Repays Loan It Received During Bailout

DealBook: After Going All In During Mining Boom, BHP Cuts Its Ambitions

U.S. Economy Grew 1.7% During the 2nd Quarter, Topping Forecasts

The mixed picture facing the country was evident on Wednesday, as the Commerce Department reported that the economy, adjusted for inflation, expanded at a better-than-expected annual rate of 1.7 percent in the April-June quarter, even as inflation-adjusted growth in the first part of the year now appears slower than first thought. In a separate statement after a two-day meeting of policy makers at the Federal Reserve, the central bank said the economy was on a “modest” trajectory but gave no clue as to when it might start tapering back its huge stimulus efforts.

Like economists and traders, as well as the 12 million unemployed Americans looking for work, the Fed is struggling to gauge whether better growth does indeed lie ahead.

Optimists point to improved levels of job creation in recent months, a more robust housing sector and a surging stock market that has lifted the value of investment and retirement accounts for millions of consumers. Pessimists focus on the fact that the estimated economic growth rate of about 1.4 percent so far in 2013 is well below last year’s levels of 2.8 percent, even as automatic cuts in federal spending and higher taxes continue to bite.

There were pockets of strength in Wednesday’s data from the Bureau of Economic Analysis, all of which will be subject to further revision as the Commerce Department gathers more information about the economy. For example, residential fixed investment increased by 13.4 percent, a sign that housing continues to rebound. Personal consumption rose 1.8 percent, as consumers showed some resiliency, especially given the increase in payroll taxes at the beginning of 2013.

Additionally, government experts have introduced the first comprehensive change in four years in how the economy is measured. They revised figures all the way back to 1929, while also restating more recent data to show that the 2007-9 recession was slightly milder than originally estimated and growth in 2012 was a bit better.

Still, economists emphasized that although the economy’s performance in the second quarter was significantly stronger than had been feared — Wall Street experts forecast growth would come in at just under 1 percent — big challenges remain.

“The basic story of a deep recession followed by a lackluster recovery is essentially unchanged,” said Nariman Behravesh, chief economist at IHS. Growth in the current quarter, which wraps up at the end of next month, remains a wild card, he added. IHS and other companies do expect a pickup in the second half of 2013, but more fallout from the fiscal tightening in Washington could still be felt, he cautioned.

“So far the effects have been fairly muted,” Mr. Behravesh said. “We’re puzzling over that.”

Were it not for the federal cuts, growth would have been close to 2 percent in both the first and second quarters, said Steve Blitz, chief economist at ITG Investment Research. But that’s about the best Americans can hope for, he said, at least in 2013.

“I don’t see the economy breaking away from that 2 percent rate for now,” Mr. Blitz said. He is more optimistic about 2014, when he said he thought the annual rate of growth could rise to about 3.5 percent. “The economy will have adjusted to the downshift in federal spending by then, and Europe won’t be decelerating as rapidly, nor will China and Japan,” he said.

The pace at which spending by the federal government is dropping stabilized last quarter. It fell by 1.5 percent, compared with an 8.4 percent decrease in the first quarter of 2013 and a 13.9 percent plunge in the final quarter of 2012.

More clues about the economy’s performance will come on Friday, when the Labor Department reports on monthly job creation and the unemployment rate. Economists estimate the economy created 185,000 jobs in July, according to a Bloomberg survey, a bit below the 195,000 level in June, with the unemployment rate falling to 7.5 percent, from 7.6 percent.

Racial Wealth Gap Widened During Recession

“It was already dismal,” Darrick Hamilton, a professor at the New School in New York, said of the wealth gap between black and white households. “It got even worse.”

Given the dynamics of the housing recovery and the rebound in the stock market, the wealth gap might still be growing, experts said, further dimming the prospects for economic advancement for current and future generations of Americans from minority groups.

The Urban Institute study found that the racial wealth gap yawned during the recession, even as the income gap between white Americans and nonwhite Americans remained stable. As of 2010, white families, on average, earned about $2 for every $1 that black and Hispanic families earned, a ratio that has remained roughly constant for the last 30 years. But when it comes to wealth — as measured by assets, like cash savings, homes and retirement accounts, minus debts, like mortgages and credit card balances — white families have far outpaced black and Hispanic ones. Before the recession, white families, on average, were about four times as wealthy as nonwhite families, according to the Urban Institute’s analysis of Federal Reserve data. By 2010, whites were about six times as wealthy.

The dollar value of that gap has grown, as well. By the most recent data, the average white family had about $632,000 in wealth, versus $98,000 for black families and $110,000 for Hispanic families.

“The racial wealth gap is deeply rooted in our society,” said Caroline Ratcliffe, one of the authors of the Urban Institute study. “It’s here, it’s not going away, and we need to care about it.”

Many experts consider the wealth gap to be more pernicious than the income gap, as it perpetuates from generation to generation and has a powerful effect on economic security and mobility. Young black people are much less likely than young white people to receive a large sum from their parents or other relatives to pay for college, start a business or make a down payment on a home, for instance. That, in turn, makes their wealth-building prospects shakier as they move into adulthood.

Two major factors helped to widen this wealth gap in recent years. The first is that the housing downturn hit black and Hispanic households harder than it hit white households, in aggregate. Many young Hispanic families, for instance, bought homes as the housing bubble was inflating and reaching its peak, leaving them saddled with heavy debt burdens as house prices plunged in places like suburban Phoenix and inland California.

Black families also were hit disproportionately by the housing collapse, because heading into the recession housing constituted a higher proportion of their wealth than for white families, leaving them more exposed when the market crashed. Higher unemployment rates and lower incomes among blacks left them less able to keep paying their mortgages and more likely to lose their homes, experts said.

Discriminatory lending practices were also a factor. “We know that communities of color, their rate of subprime or predatory loans was twice what it is in the overall population,” said Tom Shapiro, the director of the Institute on Assets and Social Policy at Brandeis University.

Black families also suffered bigger hits to their retirement savings, the Urban Institute found. On aggregate, the value of black families’ retirement accounts shrank 35 percent between 2007 and 2010, while white families’ accounts actually gained 9 percent over the same period. With lower earnings and higher unemployment rates leaving them with a thinner safety net to begin with, black families were more likely to take funds out of the market when it was depressed, leaving them out in the cold as the market recovered.

“That reservoir of what you can dig into for emergencies and contingencies is a lot shallower in communities of color,” Professor Shapiro said. “That pushes black families to sling off assets, like I.R.A.’s or stocks, that you might have had another goal in mind for.”