US economy grows by only 0.6% in 1st quarter
Updated: 2008-04-30 22:29
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, businesses boosted their investment in building up stocks of supplies in the first quarter, a big force adding to GDP. Exports of US goods and services also helped first-quarter growth. US exports are being helped by the falling value of the US dollar, which makes US 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 is expected to lower a key interest rate by one-quarter percentage point to 2 percent later Wednesday. 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.
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.
A growing number of economists believe the economy is in a recession and is indeed contracting now.
Under one rough rule, if the economy contracts for six straight months it is considered to be in a recession. That didn't happen in the last recession - in 2001 - though. A panel of experts at the National Bureau of Economic Research that determines when US 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.
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