The US economy unexpectedly grew more in the first quarter than reported a month ago, reflecting a smaller trade deficit and the first increase in business equipment spending in 1 1/2 years.
The revised 6.1 percent rate of increase in gross domestic product, the total value of all goods and services produced in the US, compares with a 5.6 percent pace that was estimated last month, the Commerce Department said. The economy grew at a 1.7 percent pace in the final three months of last year.
The first-quarter growth spurt was the fastest in more than two years. Still, growth is expected to cool in coming months, economists said. An absence of pent-up demand by consumers, who never really stopped spending during the recession, means companies may be reluctant to build up inventories.
"The recovery is going to persist," said Stephen Ricchiuto, chief economist at ABN Amro Inc in New York. Growth "is not going to be anywhere as fast as it was in the first quarter but I expect a gradual improvement in the economy."
A Bloomberg News poll of 55 economists projects that the economy will grow at a 2.7 percent rate in the second quarter before accelerating to 3.2 percent in the third quarter and a 3.5 percent pace in the fourth. That means growth this year would be less than the 7 percent average typical after most recessions.
That's why Federal Reserve policy makers kept their benchmark interest rate at a four-decade low of 1.75 percent. Inventory growth may provide less of a boost to the economy and the strength of demand "remains uncertain" in coming months, the central bankers said in a statement at the conclusion of the two-day meeting.
Economists had expected a 5.6 percent first-quarter growth rate, the same as reported a month earlier, based on the median of 53 forecasts in a Bloomberg News survey. The rate of growth was the fastest since an 8.3 percent surge in the fourth quarter of 1999.
A separate report from the Labor Department showed first-time jobless claims fell to 388,000 in the week that ended Saturday from 398,000 in the prior week. The decrease was the fourth in the last six weeks and shows companies are holding the line on firings, economists said.
After-tax corporate profits rose 1.4 percent in the first quarter. Profits from current production, a gauge widely followed by economists, rose 5.8 percent, after surging 125 percent in the fourth quarter, as a jump in foreign profits subtracted from increased US profits.
The numbers, which aren't annualized and are distorted because of a capital-equipment depreciation allowance, show that "profits are weak but improving," said Steven Wieting, senior economist at Salomon Smith Barney Inc.
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