WASHINGTON, US - The US economy grew at an annual 0.9 per cent pace in the first quarter of the year, the government said on Thursday in an upward revision that calmed the nerves of some economists.

The Commerce Department initially pegged first-quarter gross domestic product (GDP) growth at 0.6 per cent, the same lacklustre pace as the 2007 fourth quarter.

The revision, in line with expectations, bolsters the stance of some economists who believe the world's largest economy will avoid a recession despite a deep housing slump, a related credit crunch and soaring oil prices.

Although the first-quarter expansion marked the strongest period of economic activity since the third quarter of 2007, growth remains subpar for the world's top economic powerhouse.

'The overall GDP growth rate is still indicative of a sluggish economy on the cusp of recession,' said Mr Paul Ferley, an economist at RBC Capital Markets.

Some analysts expect second-quarter growth of 1.0 per cent and say the economy is not running on all cylinders.

With the first quarter now in the rear-view mirror, they are also waiting to see how much lift is delivered by a giant US$168 billion (S$230 billion) government economic stimulus.

Mr Ferley said tax rebates stuffed into the stimulus will likely underpin consumer spending.

The improved revision was mainly fuelled by consumer spending on services, the export of goods and services and government spending, the Commerce Department said.

The depressed housing market continued acting as a drag on the economy, as did reduced consumer spending on durable goods, which includes big-ticket manufactured products such as cars, televisions and large household appliances.

The revised reading left consumer spending, a critical driver of economic growth, pegged at a 1.0 per cent growth rate which marked a considerable moderation from the fourth quarter's 2.3 per cent.

Consumer spending on services showed a 3.0 per cent growth clip compared with a lesser 2.8 per cent in the fourth quarter of last year, but spending on durable goods declined 6.2 per cent, to its weakest level since the fourth quarter of 2005, compared with a 2.0 per cent gain in the prior quarter.

Hardly a healthy economy
'The report hardly portrays a healthy economy. The economy is far from out of the woods,' said Mr Nigel Gault, an economist at Global Insight.

Real residential fixed investment, which tracks new home construction, slumped 25.5 per cent during the quarter after falling a similar 25.2 per cent during the last three months of 2007.

Business spending outside housing declined 0.2 per cent in the quarter, following a 6.0 per cent gain in the prior three month period.

The combined exports of goods and services added 0.80 percentage points to growth, partly as exports were propped up by the ailing dollar. Exports grew 2.8 per cent while imports fell 2.6 per cent.

'The first-quarter GDP report was in line with expectations for a small upward revision but continues to show that the domestic economy is struggling and increasingly reliant on external trade to support the sector,' Merrill Lynch economist David Rosenberg said in a research note.

An inflation barometer showed a key price index linked to GDP rose 3.5 per cent while core prices, excluding food and energy costs, rose 2.1 per cent.

Although both readings have cooled somewhat from the fourth quarter, economists said the Fed remains worried about inflationary pressures, particularly as oil prices have soared to record peaks above US$135 a barrel this month.

First-quarter growth will be revised a final time in coming weeks. -- AFP