The U.S. economy grew at a 0.6% annual rate in Q1 2008, the U.S. Commerce Department announced Thursday, a slow pace but still considerably better than what economists had expected. It was the same GDP growth rate as Q4 2006.

Economists surveyed by Bloomberg News had expected Q1 2008 GDP to be 0.3%.

The quarter was led by export strength, an inventory rise and surprisingly strong consumer spending -- the latter rose at a 1% annual pace in the quarter. Still, consumer spending is running at its lowest pace in seven years. Inventories rose at a 0.8% annual pace, but business investment dropped 2.5% in the quarter.

Meanwhile, the report's consumer price index increased at an annual rate of 2.6% compared with a 2.4% rise in the prior quarter.

In addition, the U.S. Federal Reserve's preferred inflation gauge, the CPI price deflater, which excludes food and energy costs, rose at a 2.2% pace, down from 2.5% in Q4 2007. Core prices have increased 2.0% in the past year, exactly at the Fed's 'comfort zone.'

Economy in (very) slow-growth mode

Economist David H. Wang told BloggingStocks Wednesday the Q1 2008 GDP statistic is a mild upside surprise, but it still shows an economy in slow-growth mode, at best.

"In the report we can see the headwinds and higher costs affecting the consumer," Wang said. "Absent the performance by exports, we would have had negative GDP in Q1, so it's still not a very good report. The economy is barely growing, which is not nearly good enough."

Wang said he didn't think the Q1 2008 GDP report was strong enough to deflect the Fed from its monetary easing stance. The Fed will issue its policy statement on interest rates later today at 2:15 p.m. EDT.

"The Fed will now probably move forward with a quarter-point cut in interest rates," Wang said. "Inflation is still elevated, but this report did very little to suggest the economy is on the right track yet, so in my interpretation, they have to lower rates at least one more time, today."