March 27 (Bloomberg) -- The U.S. economy grew at an annual pace of 0.6 percent from October though December, weakened by a deepening housing slump that may be bringing an end to the six- year expansion.

The gain in gross domestic product followed a 4.9 percent third-quarter growth rate, the Commerce Department said today in Washington. Measures of inflation were revised down and corporate profits dropped.

Claims for jobless benefits over the past month were at the highest level in more than two years, a separate report showed, indicating a rise in firings that may further slow consumer spending. Combined with declines in business investment and construction, the world's largest economy may not grow from January through March.

``It's hard to see any good news at all,'' said Nariman Behravesh, chief economist at Global Insight Inc., a Lexington, Massachusetts, forecasting firm. ``Housing is still dropping like a stone and now the consumer is slowing too. That's the big difference'' from last quarter.

Today's report was the final of three estimates provided by the government. The advance reading on first-quarter growth is due April 30. Economists forecast a final GDP reading of 0.6 percent, according to the median projection in a Bloomberg News survey. Estimates ranged from no growth to 1 percent.

The figures today included a first look at corporate profits for the quarter. Earnings dropped 3.3 percent, a second straight decline, to an annual rate of $1.57 trillion.

Loan Losses

The drop may even be understated because the government doesn't take into account asset write downs and loan-loss provisions in calculating current-quarter profits. Financial firms still recorded a 15 percent drop in profits last quarter, even without reflecting those losses.

For all of last year, profits were up 2.7 percent, the smallest gain since a decline in 2001 when the economy was in recession.

``The fate for 2008, I think, was set some time ago,'' Don Drummond, chief economist at Toronto-Dominion Bank in Toronto, said in a Bloomberg Radio interview. ``Growth is going to average 0.0. It's flat. Maybe it's going to be a tiny negative or maybe it's going to be a tiny positive.''

The average number of Americans filing first-time claims for unemployment benefits over the last four weeks rose to 358,000, the highest since October 2005. The figures indicate employers are cutting jobs or delaying hiring.

`Businesses Are Nervous'

``That's a pretty good indication of the softness in the labor markets,'' said Stephen Gallagher, chief U.S. economist at Societe Generale SA in New York. ``Businesses are nervous and are cautious.''

The GDP report showed prices rose at a 2.4 percent pace in the last three months of 2007, down from the 2.7 percent estimated previously. Excluding food and fuel, consumers paid 2.5 percent more for goods and services at an annual rate, down from the 2.7 percent projected last month.

Consumer spending, which accounts for more than two-thirds of the economy, rose at a 2.3 percent annual rate in the fourth quarter, revised up from the 1.9 percent increase previously estimated, according to today's report. Spending rose 2.8 percent in the third quarter.

The weakening labor market, combined with higher food and energy costs and the ongoing slump in housing, has unnerved consumers this quarter. The Conference Board said this week its confidence index fell to a five-year low in March.

Less Spending

The dimmer outlook is already hurting spending. Retail sales fell 0.6 percent in February, according to figures from the Commerce Department, the second decline in three months.

Spending may grow at an annual rate of 0.5 percent from January through March, the slowest advance since the 1991 recession, according to the median estimate of economists surveyed earlier this month.

``You have an economy that really is in a tailspin, and many would say the consumer is in a recession,'' Starbucks Corp. Chief Executive Officer Howard Schultz told shareholders at the company's annual meeting in Seattle on March 19.

Residential construction decreased at a 25 percent pace last quarter, the most since 1981. Declines are likely to continue through much of 2008.

The downturn in home building is now filtering through to other types of construction. Spending on building projects in January fell by the most in 14 years, depressed by declines in construction of hotels and power plants and the ongoing drop in housing, according to a report from Commerce earlier this month.

Investment Cools

Businesses are also cutting back. Orders for durable goods unexpectedly fell in February, led by a slump in demand for machinery, the Commerce Department reported yesterday.

``The economy is going to be quite soft in the first part of this year,'' said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. ``What we'll see is a very weak recovery.''

Today's GDP revisions showed the rest of the economy would have already contracted last quarter without a boost from exports. Excluding an improvement in trade, the economy shrank at a 0.4 percent annual pace, the first decline since the last recession in 2001.

``The outlook for economic activity has weakened further,'' the Federal Reserve said last week after it cut the key rate to 2.25 percent.

Fed policy makers have lowered the benchmark interest rates and pumped money into the banking system to try to make it cheaper and easier for Americans to borrow and spend.

More and more economists are forecasting a recession. Martin Feldstein, the Harvard economics professor who heads the research group that determines when downturns begin, said this month that a contraction had already begun.

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

Last Updated: March 27, 2008 10:26 EDT