Risk of economic contraction rises: Philly Fed

By Richard Leong

NEW YORK (Reuters) - The U.S. economy will barely expand in the second quarter and the chances of it shrinking have risen, following sluggish growth early in the year, said a Philadelphia Federal Reserve survey released on Tuesday.

The 50 economists surveyed by the regional Fed also forecast a sizable pickup in overall inflation in the next several months as a result of surging oil and food prices.

However, they expect core inflation that excludes those volatile categories to rise only modestly.

They forecast U.S. gross domestic product in the current quarter would expand at an annualized rate of 0.2 percent, sharply below their prior forecast of 1.3 percent.

"A higher risk of a contraction accompanies the forecast," the Philadelphia Fed said in the quarterly survey.

Forecasters revised upward the prospects of a contraction in the second quarter to 49.1 percent from their earlier projection of a 42.9 percent risk.

The government's preliminary reading of first-quarter U.S. GDP, released on April 30, said the economy grew 0.6 percent, the same as in the fourth quarter.

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