The smell of stagflation was in the air on Friday after the Commerce Department released its quarterly G.D.P. report, indicating that the U.S. economy last quarter experienced its slowest growth in four years.

Increased consumer spending, state and local government expenditures, and business investments were not enough to counter the drag from the flagging housing market, as well as a widening trade gap, smaller inventories, and slower growth in federal government spending.

G.D.P. rose at a seasonally adjusted 1.3 percent annual rate in the first three months, down from 2.5 percent in the fourth quarter of 2006 and well below economists' mean estimates of 1.8 percent. Growth in the 12 months ended in March was 2.1 percent, the weakest year-over-year gain since the second quarter of 2003.

Some of the worst news was from the housing market, which continued its downward slide for a sixth consecutive quarter. Residential fixed investment dropped by 17 percent, which can only be seen as good news, in light of the 19.8 percent decrease in the fourth quarter. Housing, now enduring its longest continuous dip in a generation, shaved 0.97 percent from the G.D.P.

International trade presented a further drag on the economy, lowering G.D.P. by 0.52 percentage points. Exports fell by 1.2 percent, the biggest decline in four years, and imports increased 2.3 percent. In the fourth quarter, trade had added 1.59 percentage points to G.D.P. growth.

Inventory growth slowed again. Goods on hand increased by $14.8 billion, after rising $22.4 billion in the fourth quarter and $55.4 billion in the third quarter. That slowdown cut the first quarter's G.D.P. by 0.3 percentage points.

Federal government spending decreased 3 percent, after rising in the fourth quarter by 4.6 percent.

The good news was mainly in consumer spending, which accounts for about 70 percent of G.D.P. It continued its positive trajectory following a fourth-quarter gain of 4.2 percent. Overall, consumer spending rose 3.8 percent and contributed 2.66 percentage points to growth, down from 2.93 percentage points in the fourth quarter.

Business spending also rose, by a lackluster 2 percent, but this represents a rebound from its 3.1 percent fall in the fourth quarter. Business investment contributed 0.2 of a percentage point to G.D.P.

State and local government outlays rose 3.3 percent, after going up by 2.7 percent in the fourth quarter.

But growing inflationary pressures will make it difficult for the Federal Reserve to cut interest rates, despite sluggish growth.

The report's most closely watched inflation reading, the core personal consumption expenditures deflator, is expected to come in at 2.2 percent, up from a 1.8 percent increase in the fourth quarter and exceeding the 1 to 2 percent range preferred by the Fed. The core P.C.E. deflator measures prices paid by consumers for goods other than food and energy.

Treasury prices are up slightly following the report, which sent the yield on the 10-year note down by 0.01 percent to 4.67 percent. The Dow retreated 8.78 on the news to 13,097 by midmorning Friday. The dollar fell to an all-time low against the euro.