BMO Nesbitt Burns says that the stock market may have been right all along — the economic recovery in the United States is not nearly as strong, or as certain, as was widely assumed. U.S. GDP grew at a less-than-expected 1.1% in the second quarter.

BMO says that the U.S. economy wasn’t as strong in the first half of this year or last year as many believed. “This morning’s release of the second quarter GDP data show not only a bigger-than-expected plunge in Q2 growth, but also a marked downward revision in the pace of Q1 expansion as well.”

Second quarter growth was very modest, half the expected rate. Consumer spending also took a dive. “More recently, consumer confidence figures point to a sustained weakness in U.S. consumption. There was no pop in business capital spending, as some expected, with spending on structures particularly weak,” says BMO.

“But the weakness was not isolated to just the first half of this year,” BMO points out. It notes that the annual benchmark revisions to the historical data show the U.S. economy contracted in the first three quarters of 2001, confirming the National Bureau of Economic Research’s announcement last November that the recession started in March 2001. Consumer and business spending was meaningfully weaker than originally forecast.

BMO forecasts that the slide in consumer spending will continue as personal savings rates rise. ‘Economic activity is vulnerable,” says BMO. The brokerage goes on to suggest that the “Bank of Canada might want to reassess their ‘balanced-risks’ outlook before the next policy-statement date on September 4.”