Washington, June 10 (Bloomberg) -- The U.S. economy is expanding this quarter at about half the pace of the first three months of the year, according to the June Blue Chip Economic Indicators survey. Growth from April through June will probably cool to a 2.9 percent annual rate from the first quarter's 5.6 percent pace, according to the latest consensus forecast from 52 economists. First-quarter growth was the fastest in almost two years. This month's forecast for the current quarter is down from a 3.1 percent rate predicted in May and marks the second straight drop in expectations. Consumer spending on services, which include everything from haircuts to health care, slowed in April, the government reported last month. And in May, Americans bought cars and light trucks at the slowest pace since November 1998, the Blue Chip report said. Personal consumption expenditures, which account for two- thirds of the economy, ``look to be the major soft spot,'' the report said. Spending probably is rising at a 2.6 percent rate this quarter, down from a 3.2 percent pace in the previous quarter and 6.1 percent in the final three months of 2001, the report showed. Spending is likely to pick up, accelerating to 2.8 percent in the third quarter and 3 percent in the fourth, according to the survey. Gross domestic product will probably increase 2.8 percent this year, the latest survey showed, matching last month's growth forecast. GDP will expand at a 3.4 percent pace in the third quarter and at a 3.7 percent rate from October through December. Both quarterly forecasts are higher than last month's expectations. The economy grew 1.2 percent last year.

Growth Next Year
Growth will probably accelerate to 3.6 percent in 2003, according to the consensus, up from 3.5 percent projected last month. While data suggests that consumer spending is cooling in the current quarter, ``the outlook for capital spending is brightening and the recovery in the manufacturing sector continues to gather strength,'' the report said. Manufacturing expanded in May at the fastest pace in more than two years, buttressed by increases in new orders and production, according to figures last week from the Institute for Supply Management. New orders have been rising since December, the group's survey of factory purchasing executives showed. Production at the nation's factories, mines and utilities will probably rise at a 4.6 percent annual rate this quarter, up from a 2.6 percent pace in the previous three months, according to the Blue Chip consensus. Production is likely to rise at a 4.9 percent rate in each of the next two quarters.

Fed Rate Expectations
Federal Reserve policy makers have kept the target overnight bank lending rate at a 40-year-low of 1.75 percent since December to prevent consumer demand from faltering and to stimulate business spending. The likely slowdown in growth may mean the Fed will keep the overnight rate steady a while longer, according to the survey. No economist predicted the Fed's first rate increase since May 2000 would occur at the central bank's next policy meeting on June 26. Little more than half, 54 percent, said the Fed's Aug. 13 meeting would be the most likely time for an increase. Four out of five said a rate increase would happen by Sept. 24. The benchmark overnight rate will probably rise by year's end to a consensus average 2.61 percent, down from 2.63 percent expected in May. The rate would have to rise to 4 percent before the Fed would be striking a balance between promoting growth and preventing a flare up in inflation, according to the consensus. Seven out of 10 economists forecast that Fed policy makers would take a year or more to bring the rate up to that level. Economists at Genetski.com were the most optimistic about this year's economic growth rate in the June survey, expecting 4.1 percent. The least optimistic, Daiwa Institute of Research America, predicted 1.9 percent growth.