April 30 (Bloomberg) -- The U.S. economy expanded at a 0.6 percent annual pace in the first quarter, reflecting an increase in inventories as consumers retrenched and companies cut investment.
The gain in gross domestic product, the sum of all goods and services produced, was more than forecast and matched the rate of the previous three months, the Commerce Department reported today in Washington. The last time the economy grew less was in the fourth quarter of 2002.
``We think we're in recession, but I don't know that the GDP numbers are going to turn negative at all in 2008,'' MarkVitner, senior economist at Wachovia Corp. in Charlotte, North Carolina, said in an interview with Bloomberg Television. ``If you were to take out the swing in inventories, these numbers would be negative.''
Spending by households, the biggest part of the economy, grew last quarter at the slowest pace since 2001, when the U.S. was in a recession, as job losses mounted, food and fuel prices surged and home values tumbled. Federal Reserve officials are forecast to cut their benchmark interest rate again today to limit the downturn.
Stocks rose after the report and yields on Treasury securities fell. The dollar initially rallied, then retreated, and was little changed at $1.5555 per euro at 10:44 a.m. in New York.
ADP Jobs Report
Other reports today showed inflation slowing, the labor market still struggling to expand and manufacturing continuing to contract. Companies added 10,000 workers in April, up from 3,000 in March, ADP Employer Services reported. The average monthly increase in the past year was 69,700. The National Association of Purchasing Management-Chicago said its business activity index was little changed at 48.3 this month, from 48.2 in March.
Economists forecast a 0.5 percent gain in first-quarter growth, according to the median of 80 estimates in a Bloomberg News survey. Projections ranged from a gain of 1.5 percent to a 0.8 percent drop. The report is the first for the quarter and will be revised in May and June as more information becomes available.
The ADP figures don't include government jobs, and a Labor Department report in two days is forecast to show that total payrolls fell by 75,000 in April. The unemployment rate climbed to 5.2 percent in April, from 5.1 percent the previous month, according to the median estimate in a Bloomberg survey.
The GDP report's price index increased at an annual rate of 2.6 percent, lower than forecast, compared with a 2.4 percent gain in the prior quarter.
The Fed's preferred inflation gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 2.2 percent pace, down from 2.5 percent.
Consumer Impact
Consumer spending, which accounts for about 70 percent of the economy, rose at a 1 percent annual pace, the smallest gain since the second quarter of 2001 and less than half the 2.3 percent increase in the previous quarter.
Americans have retrenched as employers cut payrolls by almost a quarter million workers so far this year, gasoline prices approached $4 a gallon and home foreclosures surged.
``The consumer is pulling back,'' said Nigel Gault, chief U.S. economist at Global Insight Inc., a Lexington, Massachusetts, forecasting firm. ``We are probably going to have a negative second quarter as businesses start running down inventories. Weakness in housing will continue.''
Companies also cut back. Business fixed investment, which includes spending on commercial construction and equipment and software, dropped at a 2.5 percent annual rate, the biggest decline since the first three months of 2004, after increasing 6 percent the prior quarter. Spending on new equipment and software fell at a 0.7 percent rate.
Construction Plunges
Investment in residential construction projects fell at an annual rate of 27 percent, the most since 1981. The drop took away 1.23 percentage points from GDP, after a 1.25 percent drag in the prior quarter. Housing has subtracted from growth since the first three months of 2006.
Companies added to stockpiles at a $1.8 billion annual rate, after an annualized decline of $18.3 billion in the final three months of 2007. The figures added 0.8 percentage point to growth. The buildup may give way to cutbacks in production in coming months as businesses try to clear unwanted stockpiles.
Automakers already are pulling back. General Motors Corp., the world's largest automaker, this week said it is cutting production by 138,000 large pickup trucks and sport-utility vehicles this year at four plants in the U.S. and Canada.
``A significant adjustment was needed to align our production with market realities,'' Troy Clarke, Detroit-based GM's North American president, said in a statement.
Benefit From Trade
An improvement in trade continued to contribute to economic growth. The trade deficit narrowed to an annual pace of $495.9 billion last quarter from $503.2 billion. The smaller gap added 0.2 percent to growth, after a 1 percent boost the prior quarter.
The deterioration in housing, employment and consumer purchases prompted Fed Chairman Ben S. Bernanke this month to concede for the first time that a recession is possible.
Investors are betting the Fed will take a breather from its series of rate cuts after today's action, according to trading in futures markets, on concern inflation will accelerate.
Policy makers may also want time to gauge how the economy reacts to the rate reductions that started in September and to the tax rebate checks that began going out this week as part of the Bush administration's fiscal stimulus plan.
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