First quarter shows hope

WASHINGTON — The fragile economy improved slightly at the beginning of the year, and it could grow a bit stronger in the current quarter as extra cash from tax rebates spurs people to buy more. Still, it's not out of danger yet.

The economy grew at a 1 percent annualized rate in the first quarter, helped in large part by stronger sales of U.S. products overseas, the Commerce Department reported Thursday.

That was a tad stronger than the government's previous estimate of 0.9 percent growth. And the new reading was better than the anemic 0.6 percent growth rate for the final three months of last year.

Nonetheless, the two quarters together marked the slowest growth in five years. The economy has been bruised by housing, credit and financial problems. That led consumers during the first quarter to boost their spending at the weakest pace since the 2001 recession.

The government's tax rebates, the centerpiece of a $168 billion stimulus package, have helped to energize consumer spending in recent months, which should bolster the overall economy's performance in the April-to-June quarter.

But as the effects of the tax rebates fades, some analysts worry that the economy could hit another rough patch.

”The economy is far from out of the woods,“ said Nigel Gault, chief U.S. economist at Global Insight. He predicted second- and third-quarter economic growth would benefit from the tax rebates but he thinks there will be a ”relapse“ in the final quarter of this year as the effect of the rebates wanes.

On Wall Street, stocks tumbled as record-high oil prices and warnings of trouble in the key financial, automotive and high-tech industries rattled investors. The Dow Jones industrials plunged 358.41 points to 11,453.42 — its lowest finish since Sept. 11, 2006.

Other reports issued Thursday showed weak spots in the economy.

New applications filed for unemployment insurance held steady at a high level of 384,000, the Labor Department said. The number of people continuing to draw unemployment benefits climbed to 3.1 million, the most in more than four years. Employers have cut jobs each month so far this year.

The National Association of Realtors reported that sales of previously owned homes rose in May, although prices continued to drop.