Economy grew by 0.6 percent in first quarter

updated 5:24 p.m. ET April 30, 2008

WASHINGTON - The bruised economy limped through the first quarter, growing at just a 0.6 percent pace as housing and credit problems forced people and businesses alike to hunker down.

The country’s economic growth during January through March was the same as in the final three months of last year, the Commerce Department reported Wednesday. The statistic did not meet what economists consider a definition of a recession, which is a contraction of the economy. This means that although the economy is stuck in a rut, it is still managing to grow, even if slightly.

Many analysts were predicting that the gross domestic product (GDP) would weaken a bit more — to a pace of just 0.5 percent — in the first quarter. Earlier this year, some thought the economy would actually lurch into reverse during the opening quarter. Now, they say they believe that will likely happen during the current April-to-June period.

“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.”

On Wall Street, investors found comfort that the GDP figure was a bit better than expected. The Dow Jones industrials were up more than 100 points in morning trading.

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.

White House press secretary Dana Perino said the administration was disappointed in the figures. “This is nothing to crow about,” she said. “It is very slow growth, but it is growth nonetheless.”

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 biggest drag on the economy.

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 through its last recession. Shoppers did cut spending on such things as cars, furniture, household appliances, food and clothes.

Soaring energy and food prices are walloping people’s pocketbooks, leaving them with less to spend on other things. The credit crunch also has 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 from the Labor Department Wednesday 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. And, they trimmed spending on commercial construction at a 6.2 percent pace, the most since the third quarter of 2005.

However, growth in businesses’ inventories of supplies was a big force adding to GDP. That could reflect both stronger foreign demand for U.S. merchandise and weaker domestic sales, analysts said. Exports of U.S. goods and services, which increased at a 5.5 percent pace, 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.

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