The economy already is faltering. It will lose momentum during the second half of this year, Bernanke told lawmakers. Consumers have clamped down and slowdowns overseas are sapping demand for U.S. exports, he said.

Businesses in turn are hunkering down and cutting back on hiring. The nation's unemployment rate jumped to 6.1 percent in August, a five-year high. So far this year, a staggering 605,000 jobs have vanished. The economy needs to generate more than 100,000 new jobs a month for employment to remain stable.

A growing number of analysts predict the economy will shrink in the final quarter of this year and in the first quarter of 2009 as the mounting damage of the housing, credit and financial debacles take their toll on the country.

In the spring, consumers — armed with tax rebates — boosted their spending at a 1.2 percent pace. That was down from the 1.7 percent growth rate previously reported for the second quarter, but was an improvement from the 0.9 percent growth rate in the first three months of the year.

Exports grew at a 12.3 percent pace in the spring. That was down from a previous estimate of a 13.2 percent growth rate, but marked a big pickup from the first quarter's 5.1 percent pace.

One of the country's biggest problems — the housing collapse — was evident in the GDP report.

Builders cut back at an annual rate of 13.3 percent in the second quarter. Still, that was a better showing than early this year and late last year.

An inflation gauge tied to the GDP report showed prices — excluding food and energy — rose at a 2.2 percent pace in the second quarter.

Although that was down from a 2.3 percent growth rate in the first quarter, it still remained outside the Federal Reserve's comfort zone.

The Fed in June halted its most aggressive rate-cutting campaign in decades to shore up the economy out of concern that additional rate reductions would worsen already-high inflation. The Fed last week agreed to again hold its key rate steady at 2 percent, despite all the turmoil in financial markets and the broader economy. Some analysts believe the problems may force the Fed to do an about face later this year and cut rates again.