The US economy slowed to its weakest pace in four years in the first quarter this year as a housing slump, growing trade deficit and factory inventories weighed.

US GDP grew at an annual pace of just 0.6 per cent in the first three months of the year, the Commerce Department said.

The figure – a sharp downward revision from an earlier estimate of 1.3 per cent – came in below analyst forecasts of a 0.8 per cent annual pace. It followed a 2.5 per cent pace of expansion in the fourth quarter of 2006.

Economists expect growth to bounce back in the second quarter - a view seconded by the Federal Reserve, which has indicated it is more concerned over inflation than recession.

The revision was largely triggered by the wider-than-expected US trade deficit. Companies running down stockpiles also knocked a percentage point off the growth figure, economists said.

However, the slumping US housing market remained the largest drag on the world’s biggest economy, with spending on residential investment falling 15.4 per cent.

Consumer spending was the main driver of growth, increasing 4.4 per cent, up from the earlier estimate of 3.8 per cent.

An inflation indicator linked to GDP showed a 3.3 per cent gain in prices, down from an earlier estimate of 3.4 per cent. Core prices, excluding food and energy, were up an unrevised 2.2 per cent.

Separately, figures from the US Labor Department showed that the number of Americans filing first-time claims for unemployment benefits unexpectedly fell, by 4,000, to 310,000 last week, pointing to strength in the jobs market.

Job security has been cited as a key factor keeping consumer spending buoyant.

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