Washington - Growth in the world's biggest economy slowed dramatically to a 0.6% annual crawl in the fourth quarter of 2007 amid a worsening housing slump, a government report showed Wednesday.
The commerce department survey was weaker than expected as most economists had expected gross domestic product (GDP) growth to slow to around 1.2% during the last three months of 2007.
Growth moderated abruptly from a 4.9% annualized pace in the third quarter, decelerating to its weakest rate since the fourth quarter of 2002.
Economists blamed the slowdown on the ailing housing market and companies cutting their inventories as fears mount that the giant US economy could be falling into a recession.
"The economy came to a screeching halt at the end of last year, but that does not mean we are in or even headed for a recession," said Joel Naroff of Naroff Economic Advisors.
The administration of US President George W Bush and the Federal Reserve are trying to bolster growth to avoid a recession, recognised as two straight quarters of negative growth.
The GDP report was released hours before the Fed was widely expected to announce another cut in US interest rates. The central bank slashed its benchmark federal funds rate by an historic three quarters of a percentage point to 3.50%last Tuesday in a bid to shore up growth.
The Bush administration meanwhile is urging Congress to pass an economic stimulus plan worth around $150bn.
Major drag on growth
The government's first reading of fourth quarter GDP, which is subject to revision, showed that the housing downturn acted as a major drag on growth.
Real residential fixed investment, essentially new home construction, plummeted 23.9%, marking its biggest decrease since the fourth quarter of 1981.
The economy is weathering a two-year long housing slump which has been exacerbated by a glut of unsold homes and falling property values.
The Fed launched a rate-cutting drive in September as major banks began divulging billion dollar losses related to soured mortgage investments.
The banks' losses triggered a credit crunch which has plagued the financial system and US stock markets.
Companies paring back their inventories meanwhile subtracted 1.25 percentage points from fourth quarter growth as businesses decreased inventories by $3.4bn.
Economists said companies, especially auto-makers, may have cut back inventories fearing a fall off in consumer demand.
A deceleration in consumer spending also put a damper on economic momentum. Personal consumption expenditures increased by 2.0% between October and December, compared with a stronger 2.8% rate in the prior three-month period.
'Consumer spending sluggish'
"Consumer spending is sluggish but most expectations are for considerably further slowing into 2008," said Stephen Gallagher, an economist at Societe Generale.
Economists are worried that the housing downturn could dent household spending, a critical economic motor which accounts for two-thirds of all growth.
Inflationary pressures meanwhile appeared to bubble above the central bank's comfort zone, which could hamper its rate-cutting drive.
Personal consumption expenditures, which track inflation, rose 3.9% in the fourth quarter following a tamer 1.8% increase in the prior quarter.
The core PCE, which strips out volatile food and energy prices, rose 2.7% during the quarter, accelerating from a 2.0% rate in the prior quarter. The jump marked the biggest gain in core inflation since the second quarter of 2006.
The Fed's unofficial comfort zone for core inflation is between 1.0% and 2.0%.
Exports, which add to growth and have been bolstered by a weak dollar, rose 3.9% while imports, which subtract from growth, increased 0.3%.
On an annual basis, US growth slowed to a 2.2% gain for all of 2007, compared with GDP growth of 2.9% in 2006.