Economic Report
April 28, 2011, 10:29 a.m. EDT
Inflation measures pick up
By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) — The U.S. economy slowed markedly in the first quarter and inflation accelerated, clear evidence of the double whammy on the economy from higher gasoline prices.

In its first estimate for the first three months of the year, the Commerce Department on Thursday said gross domestic product rose at a 1.8% annual rate between January and March, slower than the 3.1% pace in the prior three months.

Economists polled by MarketWatch had expected a slightly weaker 1.7% growth rate. See our economic calendar with forecasts of major indicators.

One of the big stories of the first quarter was weaker consumer spending. There was also a dramatic decrease in government spending, and businesses slowed investments. The trade sector was also a slight drag on growth after boosting output in the fourth quarter.

“Slower consumer spending growth was an important contributor to the deceleration in overall growth in the first quarter, as were sharp declines in federal defense spending and expenditure by hard-pressed state and local governments,” said Joshua Shapiro, chief U.S. economist at MFR Inc.

Markets had a somewhat negative reaction to the GDP and jobless claims data released at 8:30 a.m. Eastern. The Dow Jones Industrial Average was up 16 points to 12707. The yield on the 10-year Treasury bond fell 4 basis points to 3.32%.

If inventories are excluded, there was even a more dramatic slowdown. Final sales rose at a 0.8% rate in the first quarter after rising 6.7% in the fourth quarter.

“Without the buildup in inventories, the economy essentially went sideways,” said Sung Won Sohn, an economists profession at Smith School, California State University.

Still, many economists maintain the view that growth will accelerate as the year progresses, particularly if the spike in oil unwinds. They point to a resurgent manufacturing sector and a slowly improving labor market that’s putting more people back to work — and putting more cash into the economy. Read U.S. economy in rough patch. Will it last?

“The lackluster economic performance in the first quarter is less than generally anticipated at the start of the year, but we do expect a resumption of moderate growth going forward,” said Kathy Bostjancic, director of macroeconomic analysis for The Conference Board.

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