US GDP grows at glacial pace

US GDP grows at glacial pace

The US economy is showing the strongest sign yet that it is slowing down. On Thursday the US Commerce Department released its initial readings on first quarter gross domestic product (GDP). GDP growth dropped 0.7% points from the fourth quarter of 2004 to hit 3.1%. Economists had been anticipating the annual pace of growth to be 3.5%. Typically the broadest measure of the nation’s economic activity, GDP growth was the slowest since the 1.9% of first quarter 2003. Attention now turns to signs of rising inflation. The Commerce Department’s report indicates that core inflation rose to 2.2% in the first quarter. Core inflation had been 1.7% in the previous quarter. Over on Wall Street, investors took the grim numbers to heart as the Dow Jones, S&P 500, and NASDAQ all suffered losses in midday trading. The bad GDP news comes close on the heels of a dour durable goods report released Wednesday. The figures are sure to spur further debate on where the US economy is headed. Regardless, the Fed now finds itself in a bit of a quandary as it will need to choose between raising interest rates to combat inflation or holding off on hikes to spur economic growth.