GDP Says Economy Grew, Avoided Recession

The government reported Wednesday that the U.S. economy grew at a rate of 0.6% in the first quarter of 2008, which was basically in line with expectations on Wall Street.

While GDP growth of 0.6% reflects sluggish activity in the U.S. economy as it muddles through a slowdown in the national housing market and a credit crunch on Wall Street, it also suggests that the nation did avoid recession in the first three months of the year, when many investors were predicting that a recession was underway.

Signs of resiliency in the economy also have implications for the Federal Reserve, which is expected to announce a quarter-point reduction to its federal funds rate target later in Wednesday's trading session. Many observers have concluded that the Fed, which has lowered rates by 300 basis points since the outbreak of the credit crisis last summer, will pause after Wednesday's policy decision and leave rates in place amid rising signs of inflation.

If the economy can escape the housing and credit crisis without sinking into a recession, the Fed may shift its focus back to promoting price stability instead of economic growth and raise rates back up quickly.

That said, signs of mounting problems for the U.S. economy are everywhere, despite continued GDP growth in the first quarter, suggesting it may well be too early to declare victory over the recession threat.

Zack Pandl, economist with Lehman Brothers, says he still thinks the U.S. economy is in a recession, and he doesn't think Wednesday's GDP report will affect the Fed's decision-making.

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