The new reading on the gross domestic product, released by the Commerce Department on Thursday, showed that economic growth in the January-through-March quarter was much weaker. Government statisticians slashed by more than half their first estimate of a 1.3 percent growth rate for the quarter.
The main culprits for the downgrade: the bloated trade deficit and businesses cutting investment in supplies of the goods they hold in inventories.
"We are still keeping our head above water, barely," said economist Ken Mayland of ClearView Economics.
For nearly a year, the economy has been enduring a stretch of subpar economic growth due mostly to a sharp housing slump. That, in turn, has made some businesses act more cautiously in their spending and investing.
The economy's 0.6 percent growth rate in the opening quarter of this year marked a big loss of momentum from the 2.5 percent pace logged in the final quarter of last year.
Federal Reserve Chairman Ben Bernanke doesn't believe the economy will slide into recession this year, nor do Bush administration officials. But ex-Fed chief Alan Greenspan has put the odds at one in three.
On Wall Street, investors took the weak GDP showing in stride. The Dow Jones industrials were up 22 points, and the Nasdaq gained 14 points in morning trading.
The economy's first-quarter performance was the weakest since the final quarter of 2002, when the economy was recovering from a recession. At that time, the GDP eked out a 0.2 percent growth rate. Economists were predicting the first-quarter performance this year would be downgraded, but not as much as it did. They were calling for a 0.8 percent pace.
GDP measures the value of all goods and services produced in the United States. It is considered the best measure of the country's economic fitness.
In other economic news, the Labor Department reported that fewer people signed up for unemployment benefits last week. New filings dropped by 4,000 to 310,000. That suggests the employment climate is weathering well the economy's sluggish spell.
Another report showed that construction spending edged up by 0.1 percent in April, down from a 0.6 percent gain in the previous month. Spending by private builders on nonresidential projects and spending by the government on big projects each climbed to all time highs in April but that strength was tempered by continued weakness in residential construction.
In the GDP report, many economists believe the first quarter will be the low point for this year. They expect growth will improve but still be sluggish.