By Jeannine Aversa
The Associated Press

WASHINGTON - Weighed down by high energy prices, the economy was even more sluggish than initially believed during the second quarter. But Federal Reserve policy-makers believe the pace will pick up, something President Bush is counting on as the election approaches.

The Commerce Department reported Friday that gross domestic product grew at a 2.8 percent annual rate in April-June, down from an earlier estimate of 3 percent. The new GDP reading indicated the economy slowed considerably compared with the 4.5 percent growth rate in the first quarter of 2004.

"We're no longer sprinting, but we are not running out of wind, either," said Richard Yamarone, economist at Argus Research Corp.

Gross domestic product measures the value of all goods and services produced in the United States and is considered the broadest barometer of the economy's fitness.

The new figure was slightly better than the 2.7 percent rate economists were expecting, but still provided fresh evidence of the "soft patch" that Federal Reserve Chairman Alan Greenspan said the economy had hit in June.

Greenspan and his Fed colleagues, in boosting short-term interest rates Aug. 10, however, had said the economy appeared "poised to resume a stronger pace of expansion."

Private economists believe the economy is gaining momentum in the July-to-September quarter, with growth rate estimates ranging from 3 percent to 4 percent. The government's first estimate of third quarter GDP will be released Oct. 29 - days before the Nov. 2 elections.

Although economists believe the Fed will raise interest rates for a third time this year on Sept. 21, they said much hinges on the August employment report, to be issued next week.

Soaring energy prices have taken a toll on economic activity, aggravating the U.S. trade deficit. The trade deficit in the second quarter - which hit a record $588.7 billion on an annualized basis - shaved 1.4 percentage points off the GDP.