The US economy expanded during the first quarter at a 5.6 percent annual rate that was slower than previously thought and may be followed by a cooler pace of growth this year.
The increase in gross domestic product was smaller than the 5.8 percent previously reported, the Commerce Department said. The revisions reflected a slower pace of consumer and government spending and larger decline in business investment than reported a month ago. Analysts had expected a 6 percent rate of increase in the total value of goods and services produced in the US.
At the same time, the economy grew more than three times as fast as the 1.7 percent pace in the final quarter of last year, when the US was struggling to pull out of recession. Manufacturers, including General Motors Corp, still intend to boost production to replenish stockpiles, which may underpin growth.
"This suggests that demand conditions were not as vibrant as we originally thought," said William Sullivan, an economist at Morgan Stanley Dean Witter & Co in Jersey City, New Jersey.
"This doesn't negate the existence of a recovery. It just suggests there's a modest growth trajectory unfolding." After-tax corporate profits rose at a 0.9 percent annual rate, the best performance since the second quarter of 2000.
Profits were boosted by a March 9 change in tax law that increased the depreciation that companies could claim.
Profits after tax with inventory valuation and capital consumption adjustments, a measure of earnings from current production, fell at a 2.4 percent pace after rising at 27.6 percent in the fourth quarter.
The growth rate for GDP was the fastest since 5.7 percent in the second quarter of 2000.
Inventories fell by US$25.7 billion at an annual rate, contributing 3.5 percentage points to growth -- the most in more than 14 years. The decline had previously been reported as US$36.2 billion. Inventories fell at a record US$119.3 billion rate in the fourth quarter of last year.
To keep inventories from dropping even more, General Motors, the world's largest automaker, boosted production to 1.35 million cars and light trucks in the first quarter from 1.29 million in the fourth quarter. The company still ended the quarter with fewer cars in stock, about 73 days' worth on March 31, down from 93 days' worth at the end of last year, because low-interest financing lured buyers.
The change in inventories may provide a less notable boost to growth in coming quarters. "Inventory shifts are temporary, because once businesses have inventories where they want them, then inventories no longer provide much of a spur to the economy," said Jim Glassman, senior economist at J.P. Morgan Securities Inc in New York, before the report.
Consumer spending grew at a 3.2 percent annual pace in the first quarter, down from a previously reported 3.5 percent pace and from a 6.1 percent pace in the last three months of last year that was the fastest in more than three years.
Spending on new housing rose at a 14.6 percent annual rate in the first three months of the year, the fastest since the second quarter of 1996. The government previously said residential construction spending rose at a 15.7 percent pace in the first quarter.
The pace of consumer spending, which accounts for two-thirds of the economy, may remain cooler for the rest of this year because shoppers who have already spent on cars and clothing may not need more goods. That is one reason growth is expected to cool to a 3.1 percent annual rate in the second quarter, based on the consensus forecast in the latest Blue Chip Economic Indicators survey.
"Given the strength in consumer spending and housing over the past year, there is currently little such pent-up demand in the pipeline," Michael Moskow, president of the Federal Reserve Bank of Chicago, said in a speech last week.
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