The Commerce Department said U.S. gross domestic product rose just 1.9 percent in the second quarter despite government tax rebates aimed at jolting the economy.Economists had expected growth of 2.4 percent.
The weak 1 percent GDP figure of the first three months of 2008 also was modified lower to 0.9 percent.
Meanwhile, a Labor Department report said the number of people seeking jobless benefits rose to the highest level in five years.
Economists warned the weekly figures can be volatile and some dismissed them as an aberration, however.
The poor readings rekindled fears of a recession, prompting energy traders to dump oil contracts on expectations that more belt-tightening lay ahead for Americans who are already skipping vacations, giving up gas-gazzling SUVs and cutting back on driving to cope with almost $4-a-gallon gasoline.
"When you order grounding of planes and people are making significant driving changes in the U.S. because the price of food and gasoline has doubled, that's very bearish (for oil prices) moving forward," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.
Prices were also pressured as traders cashed in profits from Wednesday's rally.Some analysts attributed the spike to low trading volume in oil markets, which can increase volatility.
Speculative traders, particular large investment funds, have been liquidating oil positions in recent months and are now shorting crude contracts, or betting that prices will fall, for the first time in 17 months.
"We're seeing a lower volume trade because this bull market seems to be over at least for the time being," Ritterbusch said.
Crude has fallen over the last three weeks from a record high of $147.27 on July 11, in part, on expectations that the spike in prices over the last year has begun to dampen U.S. demand for gasoline.
But the Energy Information Administration said Wednesday in its weekly inventory report that U.S. gasoline supplies fell 3.5 million barrels last week.Analysts surveyed by energy research firm Platts expected gasoline supplies to increase by 400,000 barrels.
In other Nymex trading, heating oil futures fell 7.83 cents to $3.442 a gallon while gasoline prices lost 6.71 cents to $3.068 a gallon.Trading of gasoline and heating oil was more volatile than normal because both contracts were set to expire at the end of the day.
Also Thursday, the Energy Department's Energy Information Administration said in its weekly report that natural gas in storage in the U.S. rose last week but is 0.5 percent below the five-year average for this time of year.
Natural gas futures shed 12.9 cents to $9.119 per 1,000 cubic feet.