It may have been a mild winter, but a chill ran through the nation's economy during the first quarter.

The gross domestic product rose only 2.8% during the period, the Commerce Department reported Friday. That was below the 3.1% growth rate expected on Wall Street and well under the 5.1% of the previous quarter.

The latest data mean it is unlikely the Federal Reserve System will increase short-term interest rates again later this month. In fact, some economists feel the risk of recession has increased, and they wonder whether the Fed's eventual next move might be to ease credit.

"There is little chance of another Fed tightening anytime soon," said Sung Won Sohn, economist at Norwest Corp., Minneapolis. "We are in a soft landing, but we need to worry now about what happens next."

"The historical probability that this will lead to a recession is 50- 50," he said.

Mr. Sohn cites four previous postwar economic slowdowns, or soft landings, in which the Fed raised rates and cooled the economy without causing an immediate recession.

In two of those instances, 1966 and 1984, business conditions picked up after the slowdowns. In two others, 1979 and 1988, the economy eventually slipped into recession.

This time, Mr. Sohn sees a 40% probability of a recession and a 60% likelihood that the current economic expansion will get its second wind.

In both cases when a recession was postponed after a slowdown, he noted, the Fed accomplished this by reducing rates to preserve the expansion.

"It's possible they might have to do that again later this year," he said, "if the economy continues on its current path."

The sharply lower growth of the first quarter resulted mostly from lower consumer spending, which grew at only a $12.4 billion anual rate during the quarter in dramatic contrast to the $44.9 billion rate of the fourth quarter.

And that in turn has created a backlog of unsold goods. Business inventories rose at a $63 billion annual rate in the March quarter, the fastest rate in more than a decade.

"During the middle two quarters of 1995, business will be busy reducing inventories by cutting back production, resulting in subpar economic growth of less than 2%," Mr. Sohn said.

Such an anemic growth pace is less than what most analysts regard as the economy's long-term growth potential. Some would label this a "growth recession" rather than merely a slowdown or soft landing.

Meanwhile, the Minneapolis bank economist pointed out, "there is still a lot of monetary restraint left in the pipeline" as a result of the Fed's series of rate increases from February 1994 through January of this year.

The question then, according to Mr. Sohn, is: "Will the economy snap out of the economic doldrums late in the year?"

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.