- The Washington Times - Friday, April 27, 2007

3:54 p.m.

Economic growth slowed to a near crawl of 1.3 percent in the first three months of 2007, the worst performance in four years. The main culprit: the housing slump.

The fresh reading on gross domestic product, released by the Commerce Department today, was even weaker than the 2.5 percent growth rate logged in the final three months of last year. The new figures underscored just how much momentum the economy has been losing as it copes with the strain of the troubled housing market, which has made some businesses more cautious in their spending.

The first-quarter GDP figure was the weakest since a 1.2 percent pace registered in the opening quarter of 2003. GDP measures the value of all goods and services produced within the United States and is considered the best barometer of the country’s economic fitness.

“This was tepid activity in the first quarter. The economy was taking a breather,” said Ken Mayland, president of ClearView Economics.

Economists had forecast a growth rate of 1.8 percent.

Still, Federal Reserve Chairman Ben Bernanke, Bush administration officials and other economists said they don’t expect the economy to fall into a recession this year.

“We knew that the housing market would go through an adjustment. The positive news here is that our economy has been able to grow in spite of that very sharp reduction,” said Commerce Secretary Carlos Gutierrez.

Even though the economy slowed in the first quarter, inflation picked up — a development that will complicate the Fed’s work.

An inflation gauge tied to the GDP report and closely watched by the Fed showed that core prices — excluding food and energy — rose at a rate of 2.2 percent in the first quarter, up from a 1.8 percent pace in the fourth quarter. Another measure tracking all prices jumped by 3.4 percent in the first quarter, compared to a 1.0 percent decline, on an annualized basis in the fourth quarter.

Federal Reserve policy-makers say the biggest danger to the economy is if inflation doesn’t recede as they currently predict.

The Fed hasn’t moved a key interest rate since August. Before that it had steadily lifted rates to ward off inflation. Many economists predict the Fed will continue to leave rates alone when it meets next month. The Fed’s goal is to slow the economy sufficiently to keep inflation in check but not so much as to provoke a recession.

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