U.S. economic growth in Q1 revised up to 0.8 percent rate

WASHINGTON - The U.S. economy's slowdown in growth at the beginning of the year wasn't quite as bad as first thought, thanks to a bigger boost from housing and less drag from business investment and trade.

The gross domestic product, the broadest measure of economic output, grew at an annual rate of 0.8 percent in the first quarter, the Commerce Department said Friday. That's slightly better than the initial estimate of 0.5 percent but is still the weakest pace in a year.

It was the second lackluster quarter in a row, following a modest 1.4 percent gain in the fourth quarter. At the beginning of this year, the economy was held back by turbulence in financial markets and global economic problems.

Economists are forecasting a rebound in the current quarter to growth of around 2 percent. They expect employers to keep adding jobs at a solid pace, which in turn should support increased consumer spending.

Paul Ashworth, chief U.S. economist at Capital Economics, said even though the revised growth rate for the first quarter was still modest, the result was less worrisome given that "more recent incoming data point to a big pick-up in second-quarter growth."

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said GDP growth in the current quarter could be as strong as 3 percent.

For the first quarter, consumer spending, which accounts for 70 percent of economic activity, grew at a 1.9 percent rate. That was the weakest performance in a year, reflecting a sharp slowdown in auto sales.

The growth revision reflects a weaker drag from business investment in structure and equipment, primarily because of new-found strength in construction of commercial structures such as shopping centers. In addition, the trade deficit did not widen as much as previously estimated and businesses did not slow their restocking of store shelves as much as first thought.

Capital investment fell at an 8.9 percent rate in the first quarter, better than the 10.7 percent drop first reported. The plunge in spending on oil and gas exploration has been a major source of weakness.

While business investment remained weak, investment in residential construction was growing at a sizzling 17.1 percent rate, the strongest advance in more than three years.

In the second half of the year, economists are forecasting that overall growth will strengthen further to around 2.5 percent.

Employers added another 160,000 jobs in April, a solid gain even if it was down from an average increase of 243,000 in the prior six months. The unemployment rate remained at a low 5 percent, down by half from the 10 percent high hit in the fall of 2009 when the economy was struggling to emerge from the worst economic downturn since the 1930s.

The U.S. economic expansion will celebrate its seventh birthday next month, making it the fourth longest recovery since World War II. But it has also been the slowest, averaging modest annual growth of 2.1 percent.

"While that growth is nothing to write home about, we are relatively better off than many of our trading partners," said Sung Won Sohn, an economics professor at California State University, Channel Islands.

Financial markets went into a nosedive at the beginning of the year, dragged down by worries about global growth and a sharp slowdown in China, the world's second largest economy. There were serious concerns that the U.S. economy, because of stalling global growth, could be headed back into recession.

Since then, markets have recovered all their early-year losses. Recent data has shown that key sectors of the economy, from consumer spending to housing, have improved.

The Federal Reserve surprised investors last week when it released minutes of its April meeting showing that Fed officials believed that a rate hike in June was likely if the economy kept improving. The Fed raised a key rate in December by a quarter-point but has left rates unchanged so far this year.