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Quarter's growth worst in four years

By ASSOCIATED PRESS
Published April 28, 2007

WASHINGTON - The worst economic growth in four years is raising concern that troubles in the U.S. housing market will spread and throw the country into a recession before the year is out.

The economy practically crawled at a 1.3 percent pace in the opening quarter of 2007, the Commerce Department reported Friday. That was even weaker than the sluggish 2.5 percent rate in the closing quarter of last year.

The main culprit in the slowdown was the housing slump, which made some businesses act cautiously. The bloated trade deficit also played a role.

"The No. 1 question is: Can the consumer continue to play Atlas while the housing market crumbles around him?" said Richard Yamarone, economist at Argus Research. Others worry about businesses' appetite to spend and invest - also important ingredients for a healthy economy.

Federal Reserve Chairman Ben Bernanke has said he doesn't believe the economic expansion, now in its sixth year, is in danger of fizzling out. Neither does the Bush administration.

The reading on gross domestic product in the first quarter was the weakest since a 1.2 percent pace 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.

"The economy went through a very soggy period, " said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group. "The biggest risk to the economy is if the housing market doesn't stabilize. That could force consumers and businesses to cut back sharply in spending. Those risks seem to be limited at this juncture, " she said.

On Wall Street, blue-chip investors took the weak GDP showing in stride. The Dow Jones industrials rose 15.44 points to 13, 120.94, the third record close in as many days. For the week, the Dow gained 158.96 points, or 1.2 percent.

Even though the economy slowed in the first quarter, inflation picked up. That could complicate the Fed's work of keeping the economy and inflation on an even keel. "This is a knife's-edge scenario, " observed John Silvia, chief economist at Wachovia Economics Group.

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 1.8 percent in the fourth quarter.

In the crumbling housing market, investment in home building was cut by 17 percent on an annualized basis after posting an even deeper 19.8 percent cut in the fourth quarter.

"The report tells me housing is probably going to be in a more prolonged and deeper recession, " said Stuart Hoffman, chief economist at PNC Financial Services Group.

Weak dollar sends euro to record-high

The euro climbed to an all-time high against the dollar Friday as weak U.S. growth figures reinforced fears of a widening economic disparity between Europe and the United States. The surge will not be kind to Americans visiting Europe this summer, who will pay more for hotel rooms in Rome, entrance fees at the Louvre and chocolates in Belgium. The euro hit $1.3682, shooting past its previous high of $1.3667 from December 2004. The 13-nation currency then settled back to $1.3655 in late European trading.
Associated Press

[Last modified April 28, 2007, 00:52:01]