Economic growth slowest since '02

NEW YORK (CNNMoney.com) -- The economy grew at its slowest pace since 2002 in the first three months of the year, according to a government report Thursday that was weaker than Wall Street expectations.

The Commerce Department's gross domestic product report, the broadest measure of the nation's economic activity, showed an annual growth rate of 0.6 percent in the first quarter. That's down from its initial estimate of 1.3 percent growth.

The nation's economy grew at its slowest pace since the end of 2002 in the first quarter.

Economists surveyed by Briefing.com had forecast the growth rate would slow to 0.8 percent.

It was the slowest period of growth since the fourth quarter of 2002, when the economy showed only a meager 0.2 percent rise. A pickup in imports, which subtract from the nation's economic activity, is one of the reasons that the reading was revised lower.

The slump in the nation's housing market subtracted about 0.9 percentage points from growth, but that's a slight improvement from the month-ago reading, when it was estimated to have cost the economy almost a full percentage point.

The report's closely watched inflation readings were little changed. The measure of prices paid by consumers in the quarter, known as the PCE deflator, showed a 3.3 percent increase in the period. That's a bit of an improvement from the 3.4 percent increase in the initial first quarter report a month ago. But the core PCE deflator, which strips out the volatile prices paid for food and energy, showed the same 2.2 percent increase as the earlier reading.

The core PCE deflator is seen as one of the key measures of inflation viewed by the Federal Reserve when the central bank policy-makers weigh whether to raise rates to keep prices in check or cut rates to spur sluggish economic growth. The Fed is generally believed to want to see the core PCE in the 1 percent to 2 percent range.

Wednesday, the Fed released the minutes of its May 9 meeting, which showed that policy-makers were concerned about slowing economic growth when they gathered three weeks ago but that they believed the downside risks to the economy "were judged to have diminished slightly."

Since that time there have been a number of reports showing greater weakness in the economy, particularly in the housing and homebuilding sector. There has also been a spike in gasoline prices to record levels, which can both slow the economy and feed inflationary pressures at the same time.