Economic growth was slower than previously reported in the first quarter as estimates of business and consumer spending were cut.

In its final estimate on the first quarter on Friday, the Commerce Department said gross domestic product expanded at a 2.7 percent annual rate instead of the 3 percent pace it reported last month.

Although the growth pace was below market expectations for a 3 percent rate, it still marked three straight quarters of expansion as the economy digs out of its most brutal downturn since the 1930s.

Analysts were little troubled by the report, which came as key consumption data implied a slowdown in the recovery and saw little threat of a double-dip recession.

This does not signal a double-dip recession. What we are seeing is just a slowdown. Stimulus is burning off and consumer demand is not really robust, said James Cox, managing partner at Harris Financial Group in Colonial Heights in Virginia.

A separate report showed U.S. consumer sentiment in June at its highest level since January 2008, which should help to support spending. The Thomson Reuters/University of Michigan's index on consumer sentiment rose to 76 from 73.6 in May, above economists forecasts for 75.5.

Stocks on Wall Street were trading flat to modestly higher, while the U.S. dollar fell against the yen. Prices for U.S. government rose marginally.

The Federal Reserve this week struck a cautious note on the economy and said the recovery was proceeding. The U.S. central bank left overnight lending rates in a zero to 0.25 percent range and renewed its commitment to an ultra low interest rate policy.


GDP, which measures total output within U.S. borders, has slowed from a 5.6 percent pace in the fourth quarter, when much of the lift came from the government's record $787 billion stimulus and the turn in the inventory cycle.

Growth in the January-March period was held back by business spending, which only rose at a 2.2 percent rate instead of 3.1 percent as reported last month.

Spending on structures was revised down to show a slightly bigger decline than previously reported. Growth in software and equipment investment was also lowered to a 11.4 percent rate from 12.7 percent. Business spending rose at a 5.3 percent pace in the fourth quarter.

Growth in consumer spending was trimmed to a 3 percent rate. Although the rise was below the 3.5 percent pace reported last month, it was still double the 1.6 percent pace in the fourth quarter and the largest advance in three years.

Consumer spending, which normally accounts for more than two-thirds of U.S. economic activity, added 2.13 percentage points to GDP last quarter, also the largest contribution since the first quarter of 2007.

You are getting growth in fits and starts, rather than an outright contraction. We are not generating real income growth that we like. It's a recovery that has a real weight on its back, said Paul Ballew, chief economist at Nationwide in Columbus, Ohio.

Other drags on growth came from a slightly wider trade deficit and state and local governments, whose spending fell at the sharpest pace since the second quarter of 1981.

Weak investment in home building chipped away at output in the first quarter. The decline in home construction followed two straight quarters of growth and underscored the fragility of the housing market's recovery from a three-year slump.

The building of business inventories continued to boost growth. Business inventories rose $41.2 billion rather than the $33.9 billion reported last month.

The change in inventories contributed 1.88 percentage points to first quarter GDP. Weak demand during the recession forced businesses to slash stocks to record low levels and the rise in inventories was the first in two years.

The GDP report also showed after tax corporate profits rose 5 percent in the first quarter, rather than the 2.1 percent increase estimated last month. Profits increased 6.5 percent in the final three months of 2009.

(Additional reporting by Caroline Valetkevitch in New York; Editing by Neil Stempleman)