The nation's economy grew at a modest but better-then-expected pace last quarter, posting a 0.6 percent increase despite the continuing housing and credit problems plaguing many Americans.
Many analysts were predicting gross domestic product (GDP) growth would come in at 0.5 percent during the January — March 2008 period. Earlier this year, some economists thought the economy actually would lurch into reverse during the opening quarter.
The latest numbers reported Wednesday by the Commerce Department also did not meet what economists consider the classic definition of a recession, a retraction of the economy. This means that although the economy is stuck in a rut, it is still managing to grow, even if the growth is modest.
"The economy is weak but not collapsing," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group "A recession can't be ruled out, although the stars are not lined up at this point to definitively say one way or the other."
Gross domestic product measures the value of all goods and services produced within the United States and is the best measure of the country's economic health. Voters are keenly worried about the country's economic problems and so are politicians — in Congress, in the White House and on the campaign trail.
The housing situation turned more bleak in the first quarter, as record-high foreclosures dumped more unsold homes on the market, adding to builders' headaches. Builders slashed spending on housing projects by a whopping 26.7 percent, on an annualized basis, the most in 27 years. That was the big drag on economic growth.
Consumers — whose spending is vital to the country's economic health — turned much more cautious, also restraining overall economic growth in the first quarter. Their spending rose at just a 1 percent pace. That was down from a 2.3 percent growth rate and was the slowest since the second quarter of 2001, when the United States was suffering from its last recession.
Soaring energy and food prices are walloping pocketbooks, leaving them with less to spend on other things. The credit crunch has also made it harder for people to finance big ticket items, such as cars and homes. And, many homeowners — watching their homes (often their single-biggest asset) — slump in value, also are feeling less wealthy and less inclined to spend.
Another report Wednesday from the Labor Department showed that workers' compensation — including wages and benefits — grew 0.7 percent in the first quarter, the slowest pace in two years. Many economists were expecting a 0.8 percent rise. The report suggests that the weak labor market is making employers a bit less generous with their compensation.
Businesses, meanwhile, cut back spending on equipment and software at a 0.7 percent pace, the most since the final quarter of 2006. They also trimmed spending on commercial construction at a 6.2 percent pace, the most since the third quarter of 2005.
Businesses, however, boosted their investment in building up stocks of supplies in the first quarter, a big force adding to GDP. Exports of U.S. goods and services also helped first-quarter growth. U.S. exports are being helped by the falling value of the U.S. dollar, which makes U.S.-made goods and services less expensive to foreign buyers.
Spending by the government was another factor helping out GDP in the first quarter. That spending rose at a 2 percent pace for the second quarter in a row.
To bolster the economy, the Federal Reserve cut a key interest rate Wednesday afternoon by one-quarter percentage point, to 2 percent. That would mark a more moderate-sized rate reduction after a recent string of hefty cuts. Many economists believe the Fed, which started dropping rates last September, may be nearing the end of its rate-cutting campaign because policymakers don't want to aggravate inflation. Those rate reductions, which take months to affect economic activity, can sow the seeds of inflation down the road.
Wall Street reacted positively to the bundle of economic news, with the Dow Jones Industrial Average jumping more than 150 points immediately after the rate cut.
An inflation measure linked to the GDP report showed that prices grew at a rate of 3.5 percent in the first quarter, down from a 3.9 percent pace in the prior quarter.
Another gauge showed that the core prices excluding food and energy rose at a rate of 2.2 percent in the first quarter. That was a lower than the 2.5 percent pace registered in the fourth quarter but still outside the Fed's comfort zone. The upper level of the Fed's inflation tolerance is 2 percent.
Gas and food prices, however, have moved higher since the start of the year, adding to inflation pressures. Gasoline prices, which have recently set new record highs, have climbed to $4 a gallon in some parts of the country.
Under one rough rule, if the economy contracts for six straight months it is considered to be in a recession. That, however, didn't happen in the last recession in 2001. A panel of experts at the National Bureau of Economic Research that determines when U.S. recessions begin and end uses a broader definition, taking into account income, employment and other barometers. That finding is usually made well after the fact.
During the first three months of this year, job losses neared the staggering quarter-million mark. The unemployment rate has climbed to 5.1 percent and is expected to move higher in the coming months.
President Bush on Tuesday said the country was dealing with "difficult times." Bush said he understood Americans' anxiety over soaring gas prices, record-high home foreclosures and other economic woes.
The government's $168 billion economic-stimulus package — including tax rebates that started flowing to bank accounts on Monday — should help energize the economy in the second half of this year, the Bush administration and Federal Reserve officials say.
The Associated Press contributed to this report.