Actually Chipp2shore has it ALMOST right...
I solved the problem like this in Word 2010:
1.Insert Address block with Chevrons.
2.Highlight Address block with your mouse.
3.Go to Home-Paragraph-Then click the tiny button in the lower right.
4.Look in the 'spacing' section & check the "Don't add space to paragraphs of same style" box.
5.Preview your letters...should be solved.
Originally Posted by chipp2shore
Anneli has it right. Just to explain in stages If you are using Word 2007 / 2010 and don't want any added spacing in your addresss labels, you will need to do the following: Start the mail merge, after inserting the mergefield(s) with chevrons at each end e.g. ((ADDRESS)), select these mergefield(s), Go to the HOME tab, click on the button by the word 'paragraph' with the up/down arrows and remove any spacing before and after paragraphs and check to see if the spacing is set to 1. Then go back to Mailings and continue with 'Update Labels' in the mail merge.
This will solve the spacing problem.