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U.S. economy grew slightly faster than expected

U.S. economic growth was revised modestly higher in the first quarter to account for a slightly faster pace of restocking by businesses and a smaller increase in imports.
/ Source: msnbc.com news services

U.S. economic growth was revised modestly higher in the first quarter to account for a slightly faster pace of restocking by businesses and a smaller increase in imports, government data showed on Friday, but remained anemic.

Gross domestic product growth rose at annual rate of 1.9 percent, the Commerce Department said in its final estimate, up from the previously estimated 1.8 percent. The revision was in line with economists' expectations.

The economy expanded at a 3.1 percent rate in the fourth quarter.

A separate government report Friday showed U.S. businesses boosted their orders for machinery, electronics products and airplanes in May. The pickup suggests manufacturing is rebounding after the Japan crises made parts scarce and slowed production of some factory goods temporarily.

Orders long-lasting manufactured products increased 1.9 percent in last month, the Commerce Department said Friday. A key category that signals business investment plans rose 1.6 percent.

Growth has remained tepid so far in the second quarter, but both economists and the Federal Reserve are cautiously hopeful that activity will pick-up in the third quarter.

First-quarter growth was supported by stronger than previously estimated accumulation of business inventories, slower imports and a smaller decline in residential construction, while the increase in business spending was revised lower.

Business inventories increased $55.7 billion, above last month's $52.2 billion estimate. The change in inventories added 1.31 percentage points to GDP growth.

Business investment rose at a 2.0 percent rate instead of 3.4 percent as outlays on equipment and software were not as strong as previously estimated.

Consumer spending -- which accounts for more than two-thirds of U.S. economic activity -- grew at an unrevised 2.2 percent rate.

Imports were revised down to a 5.1 percent growth pace from 7.5 percent. Even though exports were not as strong as previously reported, trade made a modest contribution to growth in the first quarter. Government spending contracted at a much sharper 5.8 percent rate rather than 5.1 percent, with defense outlays dropping at a revised 11.8 percent rate.

The report also showed that after-tax corporate profits were revised to an increase of 1.2 percent instead of a 0.9 percent drop. Economists had expected corporate profits to be revised to show a decline of 0.8 percent.

It also showed inflation pressures a little bit stronger, with the personal consumption expenditures price index revised to up 3.9 percent rate from 3.8 percent increase. That compared to the fourth quarter's 1.7 percent increase.

The core PCE index closely watched by the Fed advanced at a 1.6 percent rate, the highest since the fourth quarter of 2009, rather than 1.4 percent reported last month. Fed officials would like to see this measure close to 2 percent.