WASHINGTON (AFP) — The US economy grew at an annual 0.9 percent pace in the first quarter of the year, the government said Thursday in an upward revision that calmed the nerves of some economists.
The Commerce Department initially pegged first-quarter gross domestic product (GDP) growth at 0.6 percent, the same lackluster pace as the 2007 fourth quarter.
The revision, in line with expectations, bolsters the stance of some economists who believe the world's largest economy will avoid a recession despite a deep housing slump, a related credit crunch and soaring oil prices.
A recession, which last hit the US in 2001, is typically defined as two straight periods of negative economic activity. The Federal Reserve has been trying to avert an economic slump by aggressively slashing interest rates.
Although the first-quarter expansion marked the strongest period of economic activity since the third quarter of 2007, growth remains subpar for the world's top economic powerhouse.
"The overall GDP growth rate is still indicative of a sluggish economy on the cusp of recession," said Paul Ferley, an economist at RBC Capital Markets.
Some analysts expect second-quarter growth of 1.0 percent and say the economy is not running on all cylinders.
With the first quarter now in the rear-view mirror, they are also waiting to see how much lift is delivered by a giant 168-billion-dollar government economic stimulus.
Ferley said tax rebates stuffed into the stimulus will likely underpin consumer spending.
The improved revision was mainly fueled by consumer spending on services, the export of goods and services and government spending, the Commerce Department said.
The depressed housing market continued acting as a drag on the economy, as did reduced consumer spending on durable goods, which includes big-ticket manufactured products such as cars, televisions and large household appliances.
The revised reading left consumer spending, a critical driver of economic growth, pegged at a 1.0 percent growth rate which marked a considerable moderation from the fourth quarter's 2.3 percent.
Consumer spending on services showed a 3.0 percent growth clip compared with a lesser 2.8 percent in the fourth quarter of last year, but spending on durable goods declined 6.2 percent, to its weakest level since the fourth quarter of 2005, compared with a 2.0 percent gain in the prior quarter.
"The report hardly portrays a healthy economy. The economy is far from out of the woods," said Nigel Gault, an economist at Global Insight.
Real residential fixed investment, which tracks new home construction, slumped 25.5 percent during the quarter after falling a similar 25.2 percent during the last three months of 2007.
Business spending outside housing declined 0.2 percent in the quarter, following a 6.0 percent gain in the prior three month period.
The combined exports of goods and services added 0.80 percentage points to growth, partly as exports were propped up by the ailing dollar. Exports grew 2.8 percent while imports fell 2.6 percent.
"The first-quarter GDP report was in line with expectations for a small upward revision but continues to show that the domestic economy is struggling and increasingly reliant on external trade to support the sector," Merrill Lynch economist David Rosenberg said in a research note.
An inflation barometer showed a key price index linked to GDP rose 3.5 percent while core prices, excluding food and energy costs, rose 2.1 percent.
Although both readings have cooled somewhat from the fourth quarter, economists said the Fed remains worried about inflationary pressures, particularly as oil prices have soared to record peaks above 135 dollars a barrel this month.
First-quarter growth will be revised a final time in coming weeks.
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