U.S. 1st quarter growth seen weakest since 2002

WASHINGTON (Reuters) - The U.S. economy braked sharply in the first quarter, growing at its slowest pace in over five years as consumers curbed spending and jobs disappeared, a Reuters poll forecast.

It said gross domestic product, the broadest measure of total economic activity within U.S. borders, likely crept ahead at a slim 0.2 percent annual rate in the first three months this year, down from 0.6 percent growth in the fourth quarter.

The 89 estimates ranged from shrinkage of 0.8 percent to growth of 1.5 percent.

Earlier, many analysts thought the economy might contract in the first quarter but recent data showing inventories were built up more strongly that originally anticipated led them to revise forecasts to show at least tepid growth.

A rise in inventories supports growth since it means that production is being maintained at high levels but, if it is not sustained by sales, can turn into weakness in coming quarters.

"A $5 billion accumulation of stocks would add almost a full percentage point to GDP growth and, in our forecast, constitutes the difference between a positive and a negative result," RBS Greenwich Capital said in a note to clients.

Still, a first-quarter GDP growth rate of 0.2 percent would be the weakest since the fourth quarter of 2002. Jobs were lost in each of the first three months of 2008 and concern remains that the economy is at heightened risk of slipping into recession this year.

A recession is defined as a minimum of two back-to-back quarters in which GDP shrinks, something that has not happened since 2001. Continuing turmoil in credit markets together with a steep slump in homebuilding and sales is widely seen as putting the economy in danger of another downturn.

Since the fourth quarter of 2001, the economy has expanded steadily but showed increasing signs as 2007 ended of losing vigor under the strain of a slumping housing sector and soaring energy prices that have taken a toll on consumer confidence.

The following is a selection of comments from economists:

UBS

Forecast: Unchanged

"Real GDP was probably close to flat in Q1. That is not as weak as the -1.0 percent annual rate we have been forecasting for the last few months, with much of the difference reflecting less weakness than expected in consumption, along with a modest boost from inventory building."

IDEAGLOBAL

Forecast: -0.1 percent

"We have revised our original estimate of a -0.5 percent decline in output up four-tenths of a point to -0.1 percent on the back of an unexpected increase in core shipments in the durable goods category for March and the much-greater-than-expected inventory build throughout the first three months of the year."

GOLDMAN SACHS

Forecast: +0.2 percent

"We now estimate that real GDP inched up last quarter at a 0.2 percent annual rate with stabilization in inventories and a small improvement in the trade balance offsetting a drop in final sales to private domestic purchasers."

RBS GREENWICH CAPITAL

Forecast: +0.5 percent

"In the first quarter, GDP likely grew at an anemic pace of around 0.5 percent. While a narrowing trade deficit could have boosted GDP yet again in the first quarter, the biggest positive in the period may have been a modest rebound in inventories. Our projection for inventories assumes a sharp drawdown in the motor vehicle sector for a second quarter in a row, this time reflecting in part the effects of the ongoing American Axle strike."

LEHMAN BROTHERS

Forecast: +0.7 percent

"We expect a significant contribution from inventories, which should more than offset a 1 percent decline in final sales. The increase in inventories is likely unintentional: corporations were seemingly surprised by the cooling in demand and have inadvertently allowed inventories to accumulate."

(Polling by Bangalore Polling Unit)

(Reporting by Nancy Waitz; Editing by James Dalgleish)