WASHINGTON – The economy limped ahead at just a 0.7 percent pace in the first quarter, the slowest in more than four years, as some businesses clamped down on spending given uncertainties about the severity of the housing slump.
The Commerce Department's new reading on gross domestic product for the January-to-March period, released Thursday, was a slight upgrade from the 0.6 percent growth rate estimated a month ago. But it still fell short of economists' forecasts for a 0.8 percent pace and will probably turn out to be the weakest point for the economy this year.
Gross domestic product measures the value of all goods and services produced in the United States. It is considered the best barometer of the country's economic standing. Although businesses turned cautious, consumers remained sturdy, preventing the economy from stalling out entirely.
Even though the economy slowed in the first quarter, an inflation gauge picked up speed.
The inflation gauge tied to the GDP report and closely watched by the Federal Reserve showed that core prices -- excluding food and energy -- rose at a rate of 2.4 percent in the first quarter. That was higher that previously estimated and was a sizable pick up from the 1.8 percent pace seen in the fourth quarter. The Fed has said that inflation poses the biggest potential danger to the economy.
The economy's feeble 0.7 percent growth rate marked a significant loss of momentum from the 2.5 percent pace logged in the final quarter of last year. For nearly a year, the economy has been enduring a stretch of subpar economic growth mostly blamed on the housing slump.
However, Federal Reserve Chairman Ben Bernanke has said he believes some of the other forces that figured prominently into the first-quarter's anemic performance -- including a bloated trade deficit, cutbacks by businesses in inventory investment and weak federal defense spending -- "seem likely to be at least partially reversed in the near term."
There have been signs in more current economic reports that the economy is emerging from its nearly yearlong sluggish spell. Bernanke is among the economists predicting a rebound.
Economic growth in the April-to-June quarter could clock in anywhere from a 2.3 percent to better than a 3 percent pace, according to various projections. A few think growth could come in closer to 4 percent.
Economists are anticipating the bounce back even though they expect the housing market to continue to be sour.
The housing market took a nosedive last year after a five-year boom.
Investment in home building was slashed by 15.8 percent, on an annualized basis, in the first quarter. That was a deeper cut than estimated a month ago but wasn't as severe as the 19.8 percent annualized drop seen in the final quarter of last year. Economists predict there will be more pain ahead in the coming quarters from the housing slump.
Facing uncertainties about the economy, businesses cut back on inventory investment as they tried to make sure unsold stocks didn't get out of whack with customer demand. That lopped off nearly a percentage point of first quarter GDP. The trade deficit also weighed on GDP in the first quarter, though slightly less so than previously estimated. That was the main reason why the first quarter was upgraded to a 0.7 percent growth rate from the 0.6 percent pace reported a month ago.
Cutbacks in federal spending also contributed to the weak first quarter showing.