The economy plodded ahead at a 0.9 percent pace in the first quarter — slightly better than first estimated — but still underscoring caution on the part of consumers and businesses walloped by housing, credit and financial problems.The new reading on gross domestic product, released by the Commerce Department on Thursday, was an improvement from the government's initial growth estimate for the January-to-March 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, or GDP, 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 at that time. The figure didn't meet a definition of recession, which under a rough rule is two straight quarters of shrinking GDP, 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 economic 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 just 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 wasn't as weak as the government first estimated, contributing to the upward revision to first-quarter GDP.

One of the bright spots keeping the economy afloat in the first quarter was export growth. Exports grew at a 2.8 percent pace, although that was not nearly as much as first estimated, they still were a force for GDP 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 economic 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 GDP 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.

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