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Gas prices, bad weather slow the economy

Gas prices, which are still rising, curbed consumer spending during the first quarter of the year. Bad weather, along with high gas prices, may be responsible for the 1.8 percent annual growth rate of the economy.

Orlando Lopez lifts a 5-gallon gas can back into his truck after filling it at a Shell gas station where, at $4.199 a gallon, the price is among the highest in the area, Tuesday, April 26, 2011, in the Seattle suburb of Bellevue, Wash. In the U.S., gas pump prices have climbed for 35 straight days even though industry surveys show Americans have started to drive less. Lopez said that, because of escalating gas prices, he is "one hundred percent certain" that he will buy a Prius next year to replace his current SUV.

Elaine Thompson / AP

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WASHINGTON (AP) — The economy slowed sharply in the first three months of the year as high gas prices cut into consumer spending, bad weather delayed construction projects and the federal government slashed defense spending by the most in six years.

The Commerce Department said Thursday that the economy grew at a 1.8 percent annual rate in the January-March quarter. That was weaker than the 3.1 percent growth rate for the October-December quarter. And it was the worst showing since last spring when the European debt crisis slowed growth to a 1.7 percent pace.

Federal Reserve Chairman Ben Bernanke and other economists say the slowdown last quarter is a temporary setback. They generally agree that gas prices will stabilize and the economy will grow at a 3 percent pace in each of the next three quarters.

But gas prices are still going up. The national average on Thursday was $3.88 a gallon, an increase of 30 cents from a month ago when the first quarter ended.

An inflation gauge in the report showed consumer prices rose last quarter at the fastest pace in nearly three years, with most of the increase coming from higher fuel costs.

Rising gas prices are draining most of the extra money that Americans are receiving this year from a Social Security payroll tax cut.

In the January-March quarter, consumers boosted spending at a 2.7 percent pace. That was down from a 4 percent pace in the prior quarter and was the weakest pace since last summer. Consumer spending is important because it accounts for roughly 70 percent of overall economic activity.

Pump prices were mostly blamed for the pullback, although harsh winter weather also kept people from shopping.

"All things considered, it could have been worse," said economist Paul Dales at Capital Economics. Even though consumers spent less, the pace of spending by historical standards is decent.


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