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Economy grows at 1% pace in quarter

June 27, 2008|From the Associated Press

WASHINGTON — The fragile economy improved slightly at the beginning of the year and could grow a bit stronger in the current quarter as extra cash from tax rebates spurs people to buy more. Still, it's not out of danger.

The economy grew at a 1% annualized rate in the first quarter, helped in large part by stronger sales of U.S. products overseas, the Commerce Department reported Thursday.

That was a tad stronger than the government's previous estimate of 0.9% growth for the quarter. And, the new reading was better than the anemic 0.6% growth rate logged in the final three months of last year.

Nonetheless, the two quarters together marked the slowest growth in five years. The economy has been bruised by housing and credit problems as well as rising prices for food and fuel. That led consumers during the first quarter alone to boost their spending at the weakest pace since the 2001 recession.

However, the tax rebates that the government started sending out last month as the centerpiece of a $168-billion stimulus package have helped to energize consumer spending, which should bolster the overall economy's performance in the April-to-June quarter.

Other reports issued Thursday showed weak spots in the economy.

New applications filed for unemployment insurance held steady at a high level of 384,000, the Labor Department said, while the number of people continuing to draw unemployment benefits climbed to 3.1 million, the most in more than four years.

Employers have cut jobs each month so far this year as they cope with fallout from high energy prices, the housing slump and harder-to-get credit.

The National Assn. of Realtors reported Thursday that sales of previously owned homes rose in May, though prices continued to drop. Sales went up 2% to a pace of 4.99 million units.

The median sales price, however, fell to $208,600, down 6.3% from a year earlier.

That was the fifth-biggest year-over-year price decline in records that go back to 1999. Many analysts think housing prices need to stop falling or start rising for the ailing housing market to get back its health.

Fallout from the housing crisis continued to be a big drag on first-quarter growth: Builders slashed spending on housing projects by 24.6% on an annualized basis. That wasn't as bad, though, as the 25.2% cut made in the fourth quarter, the most in 26 years.

For now the second quarter is shaping up much better than earlier estimates of little, if any, growth for the period. At one point, some thought the economy might contract. Some second-quarter projections now range from more than 1% to just shy of 2%.

That still would be considered sluggish. More normal activity would be along the lines of a 2.5% to 3% pace.

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