The U.S. economy's growth slowed slightly in the first three months of this year, the government reported yesterday, reversing earlier estimates that the recovery had gained momentum during that period.
The economy grew at a 3.9 percent seasonally adjusted annual rate in the first quarter, a slowdown from the 4.1 percent pace of the previous quarter, the Commerce Department said.
That contrasted with the department's earlier estimates that the nation's output of goods and services, or gross domestic product, had jumped in the first quarter. Commerce initially said in April that first-quarter GDP had increased at a 4.2 percent annual rate, and then in May raised the estimate to 4.4 percent.
Those rosier numbers had earlier led economists and investors to believe that economic growth had picked up speed, in part because tax cuts and low interest rates gave consumers more cash to spend.
Instead, the new numbers show that the economy lost a little momentum as it began the year. This was primarily because more of that additional cash was used to pay for imports, rather than American-provided goods and services, than was earlier thought. So while overall demand was still relatively high, it translated into less business for U.S. companies.
The revised numbers also show that consumers boosted their spending on services and businesses increased their investment spending less than earlier thought.
The GDP number is frequently revised because, as a broad measure of U.S. economic output, it is based on many sources of information about household, business and government spending that trickle in over several months. The figure becomes gradually more accurate with each revision. The figures on exports and imports are usually among the last to become available, and they can cause the results to vary significantly.
By now, however, with the second quarter nearly over, the first-quarter GDP number is also a picture of the economy seen through a rear-view mirror, and thus had little effect on financial markets yesterday.
"The news was for the first quarter of the year and, as such, was seen as old news," said John Canavan, an analyst with Stone & McCarthy Research Associates.
Although the revised figure surprised many Wall Street economists who had based their own estimates on the earlier figures, it did not significantly change their views of how the economy has fared since or is likely to grow in coming months.
Many analysts continue to estimate that the economy is expanding at a healthy annual rate around 4 percent in the current quarter, and is likely to keep to roughly that pace or slow a bit in the second half of the year.
Nor did the revised GDP figure change analysts' predictions that the Federal Reserve will raise its benchmark overnight interest rate to 1.25 percent from 1 percent next week and will indicate that it hopes to raise the rate gradually over time if economic conditions allow.
Fed officials have said repeatedly that the overnight rate, called the federal funds rate, is too low at 1 percent for an economic recovery that appears to be on solid footing. They believe they can raise the rate slowly, at a "measured" pace, because the economy does not appear to be overheating, or growing so fast that it is likely to cause inflation to take off. They have also made clear they will move more aggressively if necessary to keep inflation under control.
The report showed that inflation was higher in the first quarter than earlier reported, but still tame by Fed standards. Consumer prices rose 3.2 percent in the January-March period, compared with a 1 percent rise in the last quarter of 2003, according to the department's personal consumption expenditure index, a measure linked to GDP.
But so-called core prices, a measure favored by the Fed because it excludes volatile energy and food items, rose 2 percent in the first quarter. That was up sharply from the 1.2 percent increase in the preceding three-month period, but still well within the comfort range of many Fed officials.
Although food and energy prices spiked in the spring, core-inflation remained relatively low in April and May.
The second-quarter GDP and inflation estimates are due to be released late next month.