Economic growth slows to a near halt

Economic growth slows to a near halt

	Published : Thu, 31 May 2007 22:29 By : Agencies Print this Story

WASHINGTON (AP) - Economic growth skidded to a near halt in the first quarter, with the worst showing in more than four years raising concerns about how long the country's sluggish spell will last.

The Commerce Department reported Thursday that gross domestic product increased by just a 0.6 percent pace in the January-through-March period, much weaker than estimated a month ago. Government statisticians slashed by more than half their first estimate of a 1.3 percent growth rate for the quarter.

The main forces behind the downgrade: the bloated trade deficit and businesses cutting investment in supplies of the goods they hold in inventories.

'We got close, but the economy did not slip under the waves in the first quarter,' said Joel Naroff, president of Naroff Economic Advisors.

What largely prevented the economy from going under: consumers, who showed an even bigger appetite to spend.

For nearly a year, the economy has been enduring a stretch of subpar economic growth due mostly to a housing slump. That in turn has made some businesses act more cautiously in their spending and investing.

The economy's 0.6 percent growth rate in the opening quarter of this year marked a big loss of momentum from the 2.5 percent pace logged in the final quarter of last year.

Federal Reserve Chairman Ben Bernanke says he doesn't believe the economy will slide into recession this year, nor do Bush administration officials and many economists. But ex-Fed chief Alan Greenspan has put the odds at one in three.

In fact, many economists believe the first quarter will probably turn out to be the weakest point for the economy this year.

'I think the worst is behind us,' said Richard Yamarone, economist at Argus Research. 'While we did have a miserable quarter in the first three months of the year, it doesn't look like it will be repeated any time soon.'

The National Association for Business Economics predicts the economy will expand at a 2.3 percent pace from April through June. If that happens, the economy would have staged a rebound but would still be growing at a pace below its average, which is around 3 to 3.25 percent, analysts said. Yamarone, however, thinks the economy is poised for a bigger bounceback in growth.

On Wall Street, stocks finished nearly flat after the weak GDP reading muted investors' enthusiasm over a new spate of acquisitions. The Dow Jones industrials, which had set a new closing high on Wednesday, lost 5.44 points to close at 13,627.64.

GDP measures the value of all goods and services produced in the United States. It is considered the best measure of the country's economic fitness.

The first-quarter's performance was the weakest since the final quarter of 2002, when the economy was recovering from a recession and GDP eked out a 0.2 percent growth rate.

In the first quarter, there was a larger trade deficit than first thought. That ended up shaving a full percentage point from the GDP. Businesses cut back on inventory investment as they tried to make sure unsold stocks of goods didn't get out of whack with customer demand. That lopped off nearly a percentage point to first-quarter GDP.

Economists, however, were hopeful those negative forces would be reversed, helping the economy gain speed in the current quarter. But there are still wild cards, including how consumers will behave given rising gasoline prices as well as the condition of the housing sector.

The sour housing market continued to weigh on overall economic activity.

Investment in home building was cut by 15.4 percent, on an annualized basis, in the first quarter. However, that wasn't as deep a cut as the 17 percent annualized drop initially estimated. And, it wasn't as severe as the 19.8 percent annualized drop seen in the final quarter of last year.

Consumers, whose spending is indispensable to the economy, boosted purchases by a 4.4 percent growth rate in the first quarter, the most in a year.

Some economists wonder how much interest consumers will have in continued brisk spending, however, given high gasoline prices that have topped $3 a gallon in many markets. More money spent filling up the gas tank leaves less to spend on other things.

One of the reasons consumers have stayed so resilient even as the housing market has been stuck in a rut is because the job market has been good.

Fewer people signed up for unemployment benefits last week, the Labor Department reported. New filings dropped by 4,000 to 310,000. That suggests the employment climate is weathering well the economy's sluggish spell.

Another report, meanwhile, showed construction spending edged up 0.1 percent in April, down from a 0.6 percent gain in the previous month.

Spending by private builders on nonresidential projects and spending by the government on big projects each climbed to all time highs in April but that strength was tempered by continued weakness in residential construction.

Taken together, the latest batch of reports suggest: 'The economy doesn't seem to be at serious risk of a recession,' said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.