Economy Grows at a Weak Pace in First Quarter

The U.S. economy grew at an anemic 1.6% pace during the first three months of the year as war, weather and other worries curbed spending by consumers and companies, the Commerce Department said Friday.

The first-quarter growth of gross domestic product -- one of the broadest gauges of the economy’s performance -- was only slightly better than its 1.4% rate of the final three months of last year, and it extended a run of economic uncertainty that has dogged the nation since it slipped into recession two years ago.

Of particular concern to analysts was that much of the growth in the recent period was the product of a statistical fluke: a decline in imports, which usually signals economic weakness but is treated as boosting GDP.

Absent the imports slowdown, growth in the January-to-March quarter would have been a mere 0.7%.

“There wasn’t much good news here,” said S. Nicholas Perna, a Ridgefield, Conn., economic consultant. “About the best you can say is that the numbers were positive instead of negative.”

Economic optimists brushed aside the latest growth figures as backward-looking and said the economy showed signs of perking up with the quick U.S. victory in Iraq and the coming of spring.

They pointed to three other reports Friday that showed that U.S. home sales remained strong and that consumer confidence, which plummeted at the start of the Iraq war, was rebounding.

The government said sales of new homes jumped 7.3% in March to an annual rate of 1.01 million units. And although sales of existing homes dipped by 5.6% during the month, they continued to hum along at a strong 5.53-million-unit annual pace. The housing market has been buoyed by four-decade-low interest rates.

Separately, a University of Michigan survey found that consumers shook off some of their war-stoked doubts in April, sending the school’s index of consumer sentiment rocketing from a 10-year-low 77.6 in March to 86.

Analysts said a pickup in confidence is crucial if consumers are to continue buying at the pace they have been and, in the process, bolster the economy. Despite the substantial size of the April improvement, survey director Richard Curtin cautioned that “the gain was only half as large as following the 1991 victory in Iraq and ... only reversed the losses recorded since the start of 2003.”

Investors took the growth numbers badly and reacted by driving down stock prices.

The Standard & Poor’s 500 index slid 12.62 points, or 1.4%, to 898.81, its steepest loss in two weeks. Meanwhile, the Dow Jones industrial average fell 133.69 points, or 1.6%, to 8,306.35, and the Nasdaq composite index dropped 22.69 points, or 1.6%, to 1,434.54.

Analysts said investors feared that the economy was weaker than they had thought, would take longer to fully recover and would not produce the jump in corporate profits they were betting on.

The first quarter’s 1.6% growth rate was somewhat weaker than the roughly 2% pace economists had predicted.

Besides the boost from declining imports, the economy drew strength from continued strong housing construction and consumer purchases of clothes, food and other smaller items, which offset a drop in sales of big-ticket items such as cars.

Housing construction raced ahead at a 12% annual rate, fueled by the lowest mortgage rates since the early 1960s.

Consumer spending rose at a 1.4% pace. That was slower than the 1.7% pace of the previous quarter, a fact that worries some analysts who fear consumers, who have been the economy’s mainstay for more than two years, finally will cut back their purchases. But it was a positive number, nonetheless.

By contrast, businesses continued to hang back during the quarter, fearful about the economic fallout of the war and uncertain about continued demand for their goods and services.

Business investment fell at a 4.2% annual rate in the first quarter, a reversal from the 2.3% increase during the final three months of last year.

Spending by the federal government, which also has bolstered the economy in recent quarters, continued to grow during the first three months of the year, but at a substantially slower pace.

State and local government spending dropped slightly.