United States growth better than expected in Q1

The new reading on gross domestic product, in a report released by the Commerce Department on Thursday, was an improvement from the government’s initial estimate for the quarter as well as the economy’s performance in the final quarter of last year. Both periods were pegged at a 0.6 percent growth rate.

Gross domestic product measures the value of all goods and services produced within the United States.

The first-quarter performance matched analysts’ forecasts and offered a somewhat encouraging sign because it showed the economy was still growing. The figure did not meet a definition of recession, which under a rough rule is two straight quarters of shrinking G.D.P., and might raise hopes the country can dodge a full-blown downturn.

Fallout from the housing crisis continued to be a big drag on overall growth.

Builders slashed spending on housing projects by 25.5 percent, on an annualized basis, in the first quarter. That was the most in 27 years.

Consumers — whose spending is the economy’s lifeblood — are feeling the pressure from the economy’s problems.

They increased spending at a 1 percent pace in the first quarter. That was the slowest since the last recession in 2001. Consumers are pulling back as high energy and food prices leave them with less money to spend on other things. Falling home values are making many homeowners feel less wealthy and less inclined to spend. And, the credit crunch has made it harder to finance big-ticket purchases.

Businesses also showed some caution, cutting spending on equipment and software. However, investment in commercial construction was not as weak as the government first estimated, contributing to the upward revision to first-quarter G.D.P.

One bright spot was export growth. Exports grew at a 2.8 percent pace in the first quarter, although that was not nearly as much as first estimated, they still were a force for G.D.P. growth. The falling value of the U.S. dollar has made U.S. exports less expensive to foreign buyers.

Looking ahead, top forecasters at the National Association for Business Economics predict the economy will eek along at a 0.4 percent growth rate during the April-to-June period, which is expected to be the weakest quarter of the year. Growth should pick up to a 2.2 percent pace in the third quarter, energized by the Fed’s powerful series of rate reductions and billions of dollars worth of tax rebates flowing into the hands of Americans from Uncle Sam.

The Bush administration and the Federal Reserve also are hoping for economic rebound in the second half of this year. That — along with inflation concerns — is why the Fed has signaled it isn’t inclined to lower rates further.

Even if economic activity strengthens later this year, the unemployment rate — now at 5 percent — is expected to climb to 6 percent or higher early next year. Businesses, which have trimmed their work forces to cope with the slowdown, will be reluctant to bulk back up until they feel certain the economy’s recovery will be enduring.

An inflation measure linked to the report showed that prices grew at a rate of 3.5 percent in the first quarter. That was the same as initially estimated and down from a 3.9 percent pace in the fourth quarter.

Excluding food and energy prices, "core" inflation increased at 2.1 percent pace in the first quarter. That was down slightly from the government’s first estimate of a 2.2 percent increase for the period and also marked a moderation from the fourth quarter’s 2.5 percent growth rate. Still, the core inflation figure outside the Fed’s comfort zone. The upper level of the Fed’s inflation tolerance is 2 percent.

Looking forward, inflation pressures could get worse given surging energy prices. Oil prices, which have racked up a string of record highs, are hovering above $131 a barrel. Gasoline prices have marched higher, too, moving closer to $4 a gallon nationwide.

In another report released Thursday, the number of new people signing up for unemployment benefits increased last week. It was the latest sign of softness in employment conditions.

The Labor Department reported that new applications filed for unemployment insurance rose by a seasonally adjusted 4,000 to 372,000 last week. The increase left claims slightly higher than the 370,000 level that economists were forecasting.