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GDP growth sluggish at 0.7%

The first-quarter pace is revised upward, but it falls short of forecasts.

June 29, 2007|From the Associated Press

WASHINGTON — The economy limped ahead at just a 0.7% pace in the first quarter, the slowest in more than four years. Some businesses clamped down on spending, given the uncertainties about the severity of the housing slump.

The Commerce Department's new reading on gross domestic product for the January-through-March period, released Thursday, was a slight upgrade from the 0.6% growth rate estimated a month ago. But it fell short of economists' forecasts for a 0.8% pace and may turn out to be the weakest point for the economy this year.

"Companies were really watching their cash," said Oscar Gonzalez, economist at John Hancock Financial Services.

Gross domestic product measures the value of all goods and services produced in the U.S. It is considered the best barometer of the country's economic standing. Although businesses turned cautious, consumer spending remained sturdy, preventing the economy from stalling out.

Even though the economy slowed in the first quarter, an inflation gauge picked up speed.

The measure 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% in the first quarter. That was higher than previously estimated and faster than the 1.8% pace in the fourth quarter.

In other economic news, fewer people signed up for unemployment insurance last week, a sign the job climate remains healthy. The Labor Department reported that new applications for jobless benefits dropped by 13,000 to 313,000 last week.

The economy's feeble 0.7% growth rate marked a significant loss of momentum from the 2.5% 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.

Growth in the April-through-June period could clock in anywhere from a pace of 2.3% to better than 3%, analysts said.

Economists are anticipating the bounce back even though they expect the housing market to continue to sour.

Investment in home building was slashed by 15.8%, on an annualized basis, in the first quarter. That was a deeper cut than estimated a month ago but not as severe as the 19.8% annualized drop seen in the final quarter of last year.

Facing uncertainties about the economy, businesses cut inventory investment as they tried to make sure unsold stocks didn't get out of line with customer demand. That lopped off nearly a percentage point from first-quarter GDP.

The trade deficit also weighed on GDP in the first quarter, though slightly less than previously estimated.

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