Economic growth stalls in first quarter

The sour housing market also restrained 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 initally estimated. And, it wasn’t as severe as the 19.8 percent annualized drop seen in the final quarter of last year.

Even so, there is no doubt that troubled housing market is one of the biggest problems for the economy. Although some businesses tightened the belt in the first quarter, consumers did not. That helped to prevent the economy from stalling out altogether.

Consumers boosted their spending by a 4.4 percent growth rate in the first quarter, the most in a year. Consumer spending accounts for a major chunk of economic activity.

Some economists wonder how much interest consumers will have in continued brisk spending, however, given rising 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 for a year is because the job market has been good.

However, there have been recent signs that the job market — while still healthy — is slowing a bit.

The unemployment rate edged up to 4.5 percent in April as payrolls grew by just 88,000, the fewest in more than two years.

An inflation gauge tied to the GDP report and closely watched by the Fed showed that core prices — excluding food and energy — rose at a rate of 2.2 percent in the first quarter. That was unchanged from its initial estimate but up from a 1.8 percent pace in the fourth quarter.

The Federal Reserve’s key interest rate has been at 5.25 percent for nearly a year. Many economists predict the rate probably will stay right where it is through the rest of this year.

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