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Slow growth fuels US recession fears

The worst economic growth in four years is raising concerns that troubles in the US housing market will spread and throw the country into a recession before the year is out.

The US economy practically crawled at a 1.3 percent pace in the opening quarter of this year, the Commerce Department reported on 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: the housing slump, which made some businesses act cautiously. The bloated trade deficit also played a role.

Consumers largely carried the economy in the first quarter. But analysts question whether they will stay resilient in light of the troubled housing market, fallout from risky mortgages and rising energy prices.

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

Friday's report brought some of these uncertainties to the fore. For now, though, economists believe the risk of a recession is low. Former Federal Reserve chairman Alan Greenspan has put the chance of a recession this year at one in three.

Federal Reserve Chairman Ben Bernanke, however, 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 GDP 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 US and is considered the best barometer of the country's economic fitness.

The performance was even weaker than the 1.8 percent economists had forecast.

"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," she said.

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.

The biggest factor behind the first quarter slowdown was the crumbling housing market. Investment in home building was cut by 17 percent on an annualized basis. Such investment had been slashed at an even deeper 19.8 percent pace in the fourth quarter.
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