June 12 (Bloomberg) -- The Bush administration's tax rebates may stop the economy from shrinking, while spiraling oil prices and a faltering labor market will limit any growth rebound, according to a Bloomberg News survey.

The economy will expand at a 0.5 percent annual rate from April to June, faster than the 0.1 percent estimated last month, according to the median forecast of 61 economists surveyed from June 2 to June 11. Consumer spending may rise at a 0.8 percent pace, also more than projected in May.

``The danger of the economy contracting seems to be passing day by day,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``The consumer seems to be spending a little more of their tax rebates than we thought.''

Economists cut their growth forecasts for later this year and next, projecting no quarter will exceed 2 percent, as soaring food and fuel prices, tougher lending rules and job losses hurt consumers. The weaker outlook means the Federal Reserve will forego raising interest rates until next year to combat inflation, according to the survey.

``The consumer has got very little in the way of support other than these rebate checks,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a forecasting firm in New York. ``The effects will be temporary and modest.''

A Commerce Department report today showed U.S. retail sales rose twice as much as forecast in May as Americans spent their tax rebates. Purchases climbed 1 percent, the most since November, after a 0.4 percent gain the prior month, the department said in Washington.

Slowing Growth

After expanding at a 1.7 percent pace in the third quarter, the world's largest economy will grow just 1 percent in the last three months of the year, according to the survey median. Growth for all of 2008 will be 1.5 percent, the worst since 2001, with next year recording a 1.9 percent gain, the survey indicates.

Consumer spending, the largest part of the economy, will mimic the seesaw pattern of acceleration followed by slower growth as the effect of the stimulus checks takes hold and then wears off.

By the end of the year, economists project spending growth will slow to a 0.5 percent rate, the weakest pace since the fourth quarter of 1991. For all of this year, purchases will advance 1.5 percent, also the smallest gain in 17 years.

The odds that the economy will officially be declared in recession over the next 12 months fell back to 50 percent, after climbing as high as 70 percent in the April survey.

Recession Factors

The National Bureau of Economic Research, a private group in Cambridge, Massachusetts, is the accepted arbiter of U.S. contractions. Its business-cycle dating committee considers changes in payrolls, sales, incomes, production and GDP in deciding when a recession has begun.

The Fed will keep its benchmark interest rate at 2 percent through the first three months of 2009, before raising the target by a quarter point in the following three months, according to the survey.

That view runs counter to projections by investors, who anticipate policy makers will raise the target rate for overnight loans between banks at least once by December, according to futures contracts. The odds that the rate will reach 3 percent by the central bank's last meeting in December are about one-in-six.

Comments by Fed Chairman Ben S. Bernanke and other policy makers over the last couple of weeks that signaled officials were growing more concerned about inflation have swayed investors more than economists.

Inflation Signs

Policy makers will ``strongly resist'' any surge in inflation expectations, Bernanke said June 9. A week earlier, the chairman raised his biggest concerns yet about the inflationary implications of the drop in the dollar's value.

``We disagree with the emerging consensus that the Federal Reserve will soon tighten monetary policy,'' Jan Hatzius, chief U.S. economist at Goldman, Sachs & Co. in New York, said in a June 10 note to clients. ``The news from the housing, credit and commodity markets over the past few weeks has remained very poor. The risk of a renewed downturn after the end of the fiscal stimulus is significant.''

Hatzius maintained Goldman's forecast that the Fed will keep the rate target at 2 percent through 2009.

Consumer prices will rise 3.4 percent this year, up from the 2.9 percent estimated last month and the most since 2005, according to the survey median. The Fed's preferred inflation gauge, which excludes food and fuel costs, will rise 2.1 percent, 0.1 percentage point less than last year, according to the survey.

Economists turned more pessimistic on the labor market, projecting the unemployment rate will end the year at 5.6 percent, up from a 5.5 percent estimate last month. The economy lost 324,000 jobs in the first five months of 2008 and the jobless rate in May jumped to 5.5 percent, the Labor Department reported last week.

To contact the report on this story: Courtney Schlisserman in Washington Cschlisserma@bloomberg.net

Last Updated: June 12, 2008 09:21 EDT