Economy's Growth Slows

Grew At Only 3.1 Percent Rate In First Quarter, Slowest In 2 Years

(CBS/AP)  The economy lost momentum in the opening quarter of 2005, growing at an annual rate of 3.1 percent. The slowest pace of expansion in two years, amid soaring gasoline prices and rising interest rates, offered new evidence the economy has hit another "soft patch."

The latest reading on gross domestic product, released by the Commerce Department on Thursday, showed that consumers and businesses turned cautious in their spending in the January-to-March quarter, a key factor in the slower economic growth. High energy prices and rising borrowing costs are causing Americans to tighten their belts a bit.

"The problem appears to be the higher energy prices, and if energy prices stay elevated, the economy is going to struggle," Mark Zandi, chief economist of Economy.com told CBS Radio News. "If energy prices moderate, which I think at this point is still the most likely scenario, then the economy should have a reasonably good year."

The first-quarter's GDP figure, down from a 3.8 percent pace logged in the final quarter of 2004, represents the economy's most sluggish showing since the first quarter of 2003, when economic activity expanded at an even more mediocre 1.9 percent rate.

GDP, the broadest barometer of the economy's health, measures the value of all goods and services produced within the United States.

The newest snapshot of the economy is likely to disappoint economists. Before the report's release, they were forecasting a 3.4 percent growth rate for the first quarter.

That estimate marked a downgrade from just a few weeks ago when economists were predicting that business growth would clock in at a pace of 4 percent or better in the first quarter. But they scrambled to lower those forecasts in the wake of a spate of disappointing economic reports in recent weeks.

Those disappointing reports — including retail sales, industrial production and big-ticket orders to factories — along with Thursday's GDP figure, add to evidence that the economy hit a "soft patch." That's the term Federal Reserve Chairman Alan Greenspan used last spring when economic growth slowed abruptly.