NEW YORK (CNN/Money) - The pace of U.S. economic growth slowed in the second quarter, according to the latest reading on the nation's gross domestic product unveiled Friday, as the broad measure of the nation's economic activity trailed Wall Street expectations.
The GDP, which measures the value of all goods and services in the nation, rose at an annual rate of 3 percent in the second quarter, compared to a 4.5 percent rise in the first quarter, revised higher from the 3.9 percent rise previously estimated for first-quarter growth.
Economists surveyed by Briefing.com were forecasting a 3.7 percent rise for the most recent period.
U.S. stock futures turned sharply lower on the report, which reinforced recent investor concern over a slowing economy.
"The concern with the economy is that the stimulus from the tax cuts and the rate cuts may be fading," economist Bill Strazzullo of State Street Corp., told Reuters. "People will pay more attention to the recent economic data. Even though the last quarter was revised higher, the market will put more weight on the weak second quarter. This will impact the equity market negatively."
Bond prices turned higher on the news as investors anticipated a slower pace of rate hikes by the Federal Reserve, which had less reason to try to cool off the economy to fight inflation.
Two closely watched measures of prices paid in the GDP report showed inflationary pressures in check.
The so-called "chain deflator" showed prices up at 3.3 percent rate in the quarter, the same as the first-quarter increase. The version of the chain deflator that excludes often volatile food and energy prices was up 1.8 percent, less than the 2.1 percent increase in the first quarter.
The second-quarter number was lower than almost all estimates. Reuters' poll of 23 economists found only one -- Argus Research -- with a forecast at or below the result. It forecast 2.9 percent growth. The other estimates ranged from 3.2 percent growth all the way up to 4.3 percent growth.
Wachovia Securities economist Gina Martin said the second-quarter number was weaker than expected because some of the expected economic growth was moved forward into the first quarter.
"Net-net we're right on for the first half performance," she said.
But she said weaker-than-expected consumer spending was a concern. The report showed only 1 percent growth in personal consumption, with spending on both durable and non-durable goods by consumers dropping in the period.
Martin blamed the higher gasoline prices seen in the quarter and less available cash in many households for the growth that was slower than expected.
"In 1Q they had a lot of excess cash. They had some stock market gains from 2003. They were pulling money out of houses," she said.
Martin said that business spending has remained strong and that growth of 4 percent in the third quarter is still possible.
"The wild card is oil prices," she said. "We've seen some big increases as of late. If we don't start to see oil prices come down, I start to get concerned where the consumer is going to come in for the second half."