WRAPUP 4-US 1st-quarter growth lowered, jobless claims fall

* First-quarter growth revised down to 3 pct

* Business investment slows, consumer spending steady

* Jobless claims fall 14,000 to 460,000 last week
(Updates markets to close)

By Lucia Mutikani

WASHINGTON, May 27 (BestGrowthStock) – The U.S. economy grew at a
slightly slower pace than previously estimated in the first
quarter but the recovery still appeared solid, suggesting the
economy could withstand fallout from the European debt crisis.

Gross domestic product expanded at a 3 percent annual rate,
the Commerce Department said on Thursday, below its initial
estimate of 3.2 percent. That surprised analysts who had
expected growth to be revised up to 3.4 percent after monthly
data pointed to stronger consumption and capital spending.

Although economic activity slowed from the fourth quarter’s
robust pace of 5.6 percent, analysts believe the recovery is
strong enough to absorb a moderate blow from the European
sovereign debt crisis sparked by Greece’s deteriorating
finances.

“It’s certainly a downside risk, but we don’t think it’s a
large risk as long as there is no financial contagion. We don’t
see the recovery faltering as a result of these concerns in
Europe,” said Dana Saporta, an economist at Stone & McCarthy
Research Associates in Princeton, New Jersey.

There are worries that austerity measures being adopted by
some European countries to cut huge budget deficits could slow
growth in the region and hurt the global economy.

The president of the St. Louis Federal Reserve Bank, James
Bullard, also played down the risk to the U.S. economy stemming
from Europe.

“Right now, I think the U.S. is going to be a beneficiary
of the crisis in Europe, barring any contagion, and I’m arguing
that I don’t see how the contagion could occur,” Bullard told
reporters in Stockholm. [ID:nLDE64Q0QI]

In a separate report on Thursday, the Labor Department said
new applications for state jobless benefits fell 14,000 to
460,000 last week, above market forecasts for a decline to
455,000. [ID:nN26222013]

SPENDING REVISED LOWER

The data had little impact on U.S. financial markets, which
were driven by China’s assertion that Europe remained a key
investment market for its vast foreign exchange reserves,
dismissing a report it was reviewing its holdings of euro zone
government bonds.

On Wall Street, U.S. stocks (Read more about the stock market today. ) rallied, with the broader
Standard & Poor’s 500 index (.SPX: ) closing up more than 3
percent. U.S. government bond prices sagged with the rise in
equities, and the dollar stepped back from near four-year highs
against the euro.

Output in the first three months of the year was pared back
as business spending rose at only a 3.1 percent rate instead of
the 4.1 percent initially reported last month. Spending grew at
a 5.3 percent pace in the fourth quarter.

Business spending on software and equipment increased at a
12.7 percent rate rather than 13.4 percent. The GDP report also
showed growth in after-tax corporate profits slowed to 2.1
percent in the first quarter after rising 6.5 percent in the
prior quarter.

Consumer spending, which is key to the economy’s recovery,
was slightly revised down to a 3.5 percent rate from the 3.6
percent pace reported last month. This reflected modest growth
in service-sector consumption, which offset a sturdy rise in
purchases of durable goods.

Spending was still more than double the 1.6 percent pace in
the fourth quarter and was the largest advance since the first
quarter of 2007.

“While the downward revisions to consumer spending and
equipment and software investment now paint a picture of a
slightly weaker rebound in the most cyclical components of GDP
at the start of the year, more timely indicators suggest that
momentum is building into the second quarter,” said Peter
Newland, an economist at Barclay Capital in New York.

Consumer spending, which normally accounts for roughly 70
percent of U.S. economic activity, added 2.42 percentage points
to GDP last quarter, the largest contribution since the first
quarter of 2007.

In a sign that consumers were starting to loosen purse
strings, warehouse club operator Costco Wholesale Corp reported
higher-than-expected quarterly profits on Thursday and said
customers were willing to buy more than just the essentials.

Recovery from the longest and deepest recession since the
Great Depression had so far been largely driven by
manufacturing as businesses replenished their warehouses.
Consumers, however, are now participating as the labor market
begins to firm.

Analysts expect consumer spending to hold near current
levels in the second quarter, citing a strengthening jobs
market, the recent bounce in housing and lower energy prices.

“These factors should more than offset the impact of the
retrenchment in stock markets,” said Paul Ashworth, senior U.S.
economist at Capital Economics in Toronto.

In the first quarter, businesses stepped up the
accumulation of goods. Business inventories rose $33.9 billion,
revised from the $31.1 billion reported last month. It was the
first increase since the first quarter of 2008. Inventories
contributed 1.65 percentage points to GDP in the quarter.

The rebuilding of inventories from record low levels is
boosting manufacturing, with activity in the nation’s Midwest
region rising at a healthy clip in April, a report from the
Chicago Federal Reserve showed. [ID:nNLLRGE64O]

First-quarter growth was also held back by hard-hit state
and local governments curbing spending at the steepest rate
since 1981. A downturn in construction and spending on
structures were also a drag on growth in the first quarter.

New home construction fell after expanding for two straight
quarters. While the slowdown in export growth was not as sharp
as initially estimated last month, it was overshadowed by a
rise in imports. That left a trade deficit, which subtracted
0.66 percentage points from first-quarter economic growth.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

GDP and jobless claims graphic: http://r.reuters.com/qud76k

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Stock Market Research

(Additional reporting by Pedro Nicolaci da Costa ; Editing by
Leslie Adler)

WRAPUP 4-US 1st-quarter growth lowered, jobless claims fall