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Revised US GDP growth is higher than expected

Stronger consumer spending helped push US growth ahead at a modestly faster rate than previously thought in the first quarter but jobs remain scarce, government reports on Thursday showed.

The US Department of Commerce said GDP, the broadest measure of economic output within US borders, grew at a revised 1.9 percent annual rate in the first quarter, better than the 1.6 percent estimated a month ago.

That exceeded a slim 1.4 percent rate of growth posted in the fourth quarter of last year, but remains well under the pace of roughly 3 percent economists consider necessary to generate enough jobs to lower the current 6 percent unemployment rate.

A separate report from the Labor Department highlighted the dearth of hiring that has accompanied a crawling recovery from recession in the first nine months of 2001.

The Labor Department said even though new claims for jobless pay fell last week, the number of people continuing to draw benefits rose to the highest level in about 18 months.

Initial claims for state unemployment insurance benefits, closely watched as a gauge of job markets' resilience, fell to 424,000 in the week ended May 24 from a revised 433,000 in the prior week, the US Department of Labor said.

But some 3.76 million Americans continued drawing jobless pay in the week ended May 17, up 83,000 from the prior week and the highest total since 3.8 million in November, 2001, shortly after the terror attacks in New York and the Washington area that temporarily hobbled economic activity.

Financial markets were generally firmer in the wake of the latest data that implied the economy came through a potentially dangerous period largely unscathed and might be poised for faster growth in the second half of the year with interest rates at 40-year lows and fresh tax cuts in place.

Businesses added to inventories at a slightly stronger rate than first thought in the first quarter -- US$13.2 billion instead of US$12.8 billion, which economists took as a sign of confidence since consumers were still spending freely.

"The numbers confirm that the war with Iraq was a drag on the economy though the damage appears limited," said Edgar Peters, an economist with PanAgora Asset Management in Boston.

"The good news is that the rise in inventories points toward embedded optimism that business would improve," he said.

The technology-loaded NASDAQ composite rose 11.71 points, or 0.75 percent, to 1,574.95, its highest close since early June and its fifth straight session of gains.

The Dow Jones industrial average initially rallied about 50 points before reversing to close down 81.94 points, or 0.93 percent, at 8,711.18. But that followed five days of gains in blue-chip stock prices.

"We can say loud and clear to the American people: You got more of your own money to spend so that this economy can get a good wind behind it," Bush said at a White House ceremony.

So far, consumers have put most of the wind in the economy's sails, while businesses hewed to a cautious course in the first quarter as Iraq war fears built.

The Commerce Department said consumer spending grew at a 2 percent rate in the first quarter instead of the 1.4 percent it reported a month ago -- a key reason for the upward revision in GDP since consumers drive about two-thirds of economic growth.

Business investment softened in the first quarter, contracting at a 4.8 percent rate after expanding 2.3 percent in the last quarter of last year.
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