GDP Grows at 1.3% Rate in 1Q

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GDP Grows at 1.3% Rate in 1Q

Washington, DC, April 27, 2007--The economy grew in the first quarter at the slowest pace in four years, slowed by the slump in home construction and a bigger trade deficit.

 

The 1.3 percent annual growth rate was less than forecast and followed a 2.5 percent fourth-quarter pace, the Commerce Department reported today in Washington. Economists expected a 1.8 percent gain in GDP in the first quarter.

 

Before adjusting for inflation, the economy expanded at a 5.3 percent annual pace last quarter, up from 4.1 percent.

 

A jump in oil last quarter pushed up prices. The report's price index rose at an annual rate of 4 percent, the most since 1991, compared with 1.7 percent in the fourth quarter.

 

The Fed's preferred inflation measure, which is tied to consumer spending and strips out food and energy costs, rose at a 2.2 percent annual rate, up from a 1.8 percent fourth-quarter gain. Fed Chairman Ben S. Bernanke is among policy makers that have said a 1 percent to 2 percent increase is preferable.

 

Consumer spending, which accounts for about 70 percent of the economy, rose at an annual rate of 3.8 percent last quarter, compared with a 4.2 percent pace in the previous three months. Before today's report, quarterly consumer-spending gains averaged 3.7 percent the past decade.

 

Home construction fell at an annual rate of 17 percent last quarter, after contracting by 19.8 percent in the previous three months. The decline subtracted 1 percentage point from first- quarter growth. The last time spending on home construction dropped for six consecutive quarters was in the early 1980s.

 

Business fixed investment, which includes spending on commercial construction as well as equipment and software, rose at a 2 percent annual rate, after falling at a 3.1 percent rate from October through December. Spending on new equipment and software increased 1.9 percent.

 

The trade deficit widened to an annual pace of $597.8 billion from $582.6 billion in the fourth quarter. The deficit reduced GDP by 0.52 percentage point.