WASHINGTON -- The U.S. economy slowed to an annual growth rate of 1.4% in the second quarter as consumers reined in spending and businesses built up inventories, the Commerce Department reported yesterday.

The advance estimate for gross domestic product, which also showed a marked slowdown in inflation that cheered the bond market, marked half of the revised 2.9% rate of growth in the first quarter.

Bush administration officials dismissed the slowdown in growth and insisted that the economy will continue to recover and put in a slightly better performance by the time of the November elections.

"The uneven growth that we are experiencing this year is not unusual," Commerce Secretary Barbara Franklin said in a statement. "Indeed, every previous post-World War II recovery showed a ~saw-tooth' pattern in which weaker quarters of growth followed, or were sandwiched between, stronger quarters."

Ms. Franklin added, "We continue to expect growth to pick up in the second half of 1992."

Commerce officials said unusually warm weather and other special factors, such as reduced withholding of federal income taxes, tended to boost consumer spending and housing in the first quarter and generate growth that normally would have come in the spring. On average, the economy expanded at a moderate rate of 2.2% in the first half, which is not far from the administration's forecast of 2.7% this year.

"We are continuing on a resumption of growth in payroll employment beginning in July to help fuel gains in personal income and consumer spending during the second half of the year," said J. Antonio Villamil, the Commerce Department's chief economist and acting undersecretary for economic affairs.

Declining inflation, accompanied by the recent drop in interest rates, should help fuel economic activity in the months ahead, said Mr. Villamil. The Commerce Department report shows that the fixed-weight price index for gross domestic purchases, which the department considers the broadest measure of price changes, felt to an annual rate of 2.8% from 3.1% in the first quarter.

Private analysts agreed that the economy will continue to move ahead at a modest pace, although some said they are not as convinced as the administration that the second-half pace of growth will be much different from that of the first six months.

"GDP growth is in the vicinity of 2%, which is hardly anything to brag about," said Charles Lieberman, managing director for Chemical Securities Inc. "We have a very scraggly recovery so far, and there are risks on the downside."

Forecasters at Salomon Brothers Inc. are looking for growth in the range of 2% to 2.5% in the second half, said economist Susan Hering. "The economy is trapped in this mode of growth that is so slow that it doesn't feel like growth."

According to the Commerce Department report, businesses increased inventories $1 billion in the second quarter after taking $12.6 billion off the shelves. The net change of $13.6 billion was nearly equal to the $16.8 billion total rise in GDP.

Final demand, which excludes change in inventories, rose a meek 0.3% after jumping 4.7% in the first quarter.

The slowdown in demand was reflected in consumer purchases, which slipped 0.3% after rising 2.9% in the first quarter. Decreases in durable and non-durable goods more than offset a rise in spending on services.

The U.S. trade sector, a major source of strength in the economy in recent years, deteriorated as exports of goods and services fell 3.8% and imports rose 6.3%.

Other than inventories, the only major source of strength came on an 8.7% gain in housing investment and a 13.5% surge in capital spending by business, led by spending on producers' durable equipment.

However, some analysts said the bond market may get a renewed sense of economic momentum with the July employment report which is due out Aug. 7. The market is looking for an increase of at least 100,000 in nonfarm payrolls, which would essentially wipe out the stunning losses reported in June.

"By next Friday, if not sooner, I think the economic growth expectations will probably be on a bit of an upswing again," said Douglas Schindewolf, money market economist for Smith Barney, Harris Upham & Co.

Financial markets appear optimistic that the decline in interest rates over the last month that has sent the yield on the 30-year Treasury bond crashing below 7.5% will help fuel a pickup in housing.

A separate report yesterday from the Commerce Department says sales of new single-family homes jumped 7.9% to a seasonally adjusted annual rate of 572,000. The pickup in sales came before the Federal Reserve's cut in the discount rate to 3% on July 2.

According to a report from the Mortgage Bankers Association, released yesterday, applications for new home purchases and refinancings continued to soar in the latest reporting week ending July 24. Compared to a year ago, applications were up 176%, with refinancings accounting for the bulk of demand for credit.

The wave of refinancings should put money in the pockets of consumers and spur spending, analysts said, although there is a partial offset because the decline in rates reduces income of fixed-income investors and bank depositors.

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