The U.S. economy grew less than expected in the second quarter as consumer spending barely rose, and growth braked sharply in the prior quarter, a government report showed on Friday. The Dow Jones Industrial Average dropped 105 points, or 0.9%. The selling had been worse, with the blue chip index shedding as much as 156 points earlier in the session.

The government said the U.S. economy grew at a 1.3% annual rate in the second quarter, up from a revised 0.4% rate in the previous three months. That was far worse than expected. Investors were already unnerved after House Speaker John Boehner delayed a vote late Thursday on his plan to raise the debt ceiling. The Republican leadership has informed its members that the House will be in session this weekend. But even if Boehner’s plan does pass the House, Senate Majority Leader Harry Reid has promised the Democratic-controlled Senate will block it, and President Obama has threatened a veto.

In addition, fourth-quarter growth was revised down to a 2.3 percent pace from 3.1 percent, indicating that the economy had already started slowing before the high gasoline prices and supply chain disruptions from Japan hit. Economists had expected the economy would show signs of perking up by now with Japan supply constraints easing and gasoline prices off their high, but data has disappointed. This and the sharp downward revisions to the prior quarters suggest a more troubling and fundamental slowdown might be underway.

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. The annual revisions of U.S. GDP data from the Commerce Department showed the economy contracted at an annual average rate of 0.3 percent between 2007 and 2010. Output over that stretch had previously been estimated to have been flat. The economy needs to grow at a rate of 2.5 percent or better on a sustained basis to chip away at the nation’s 9.2 percent unemployment rate.

In other economic data, the Chicago purchasing managers index fell to a reading of 58.8 in July. Economists had expected a reading fo 58.0.

S&P Update – Should One Enter Markets To Invest

Update to my May 23rd Report here

Markets have been up and down in such volatile fashion. Trading gains at times have been washed out in all directions. We’ll have a massive 4% gain in the S&P in four days to have it all returned the subsequent 5 days.  It has been an absolutely tough trading environment. The VIX has been trading in a tight range between $22 to $15.25 range. The volatility index as of yesterday is implying a confirmed negative for the markets. With the with GDP reading and Goldman Sachs revision of the 2011 GDP, I think analysts have been hoping for a 2ndhalf turn around. I think once production in Japan is fully back online in Q3, we may a positive read in Q4, though weaker than original estimates which subsequently opens the door for further quantitative easing aka QE3.

My suggestionas I’ve been indicating since May is to stay cash until all the political wrangling subsides. Too much market noise.

Next levels to watch are the following:

200 Day Moving Average: 1280 - Target hit this morning 7/29/11 and quickly bounced in early morning- Good Sign. We may have a relief rally first week of August since indicators are suggesting we’re oversold.

300 Day Moving Average: 1220-1225 range – This would mark the November 4, 2010 resistance and 50% retracement. I don’t anticipate markets to fall off this cliff. If we do, then we’re clearly heading to a subsequent Double-Dip recession. I find that hard to imagine entering one just yet.