Washington, April 26 (Bloomberg) -- The U.S. economy probably expanded at a 1.1percent annual rate in the first quarter as businesses invested less in equipment andfirms reduced excess inventories of autos and other goods, analysts said in advance of agovernment report. Gross domestic product, the total of all goods and services produced in the U.S., wasprobably close to the 1 percent pace in the fourth quarter that was the slowest in 5 1/2years, according to the median of 49 forecasts in a Bloomberg News survey. The lasttime growth was this slow for two straight quarters was the first half of 1995. ``That is hardly the stuff of recessions, but the economy is still weak,'' said VincentBoberski, senior economist at Dain Rauscher Inc. in Chicago. ``Given a worrisome dropin demand and sluggish investment in capital goods, a rebound may be further off than wehad thought.'' The Commerce Department issues the report on Friday at 8:30 a.m. Washington time.The report is the first of three released by the department's Bureau of Economic Analysisto show how the economy performed during the 2001 first quarter.
Consumer Spending
A pick-up in consumer purchases, led by a burst of spending on discounted items inJanuary, is the main reason analysts say the economy stayed afloat. Retail sales surged1.3 percent in January, the largest increase in almost a year, before tapering off inFebruary and dropping in March. A narrowing of the trade deficit also probably helped. Federal Reserve policy makers have expressed concern that the weakness in theeconomy may be prolonged, especially because of reduced business investment. Centralbankers have lowered interest rates four times since Jan. 3 to prevent the economy fromsliding further. The overnight bank lending rate is now 4.5 percent, the lowest since 1994. Cisco Systems Inc., the No. 1 maker of computer networking gear, Hewlett-Packard Co.,the No. 2 computer maker, and JDS Uniphase Corp., the largest maker of parts used infiber-optic equipment, are among the growing number of companies that have firedworkers after profits slumped and customers canceled orders. ``One thing seems clear -- this period of retrenchment in technology spending has thepotential to be longer than a simple inventory correction,'' Cathy Minehan, president of theFed Bank of Boston, said in a speech this week. That is one reason for ``the need forheightened vigilance on the part of the'' Fed to ensure the record economic expansionwon't end anytime soon, she said.
Automakers
Automobile makers, in the meantime, reduced production by as much as a fifth in thefirst quarter to pare excess inventories. Retailers, wholesalers, and factories also soughtto keep inventories from piling up. The effort to keep stockpiles under control probablydragged down growth in the first quarter. Even so, ``the good news is that the strong demand is working towards clearing up theinventory problem, and the sooner the inventory correction is over, the sooner productioncan come back,'' said Kenneth Mayland, president of ClearView Economics LLC inPepper Pike, Ohio. Cool economic growth was probably accompanied by a pick-up in inflation. The GDPprice deflator, a gauge of inflation tied to the report, probably rose at a 3 percent annualrate in the first quarter. That would be up from a 1.9 percent pace in the fourth quarter andthe fastest since the first quarter of last year. Analysts said any increase in the GDP price deflator would reflect pay raises for federalworkers at the start of 2001 and higher energy prices. Fed policy makers ``have got alittle bit of a wary eye toward the price increases, but I think they're pretty confident thatwith the economy slowing down, price pressures in general are receding,'' said StephenStanley, chief economist at Greenwich Capital Markets Inc. in Greenwich, Connecticut.