The U.S. economy shrank slightly less in early 2009 than previously thought, the government reported on Thursday, though there was widespread weakness in activity and demand was soft.
Gross domestic product, which measures total output within U.S. borders, dropped at a 5.5 percent annual rate in the first quarter after shrinking 6.3 percent in the fourth quarter of last year and 0.5 percent in the third quarter.
Separately, the Labor Department said the number of workers filing new claims for jobless benefits unexpectedly rose last week by 15,000 to a seasonally adjusted 627,000 -- a measure of the strain still faced by hard-pressed consumers.
This will send a message that the labor market remains difficult and that it'll be a while until we get some recovery, said Peter Boockvar, equity strategist with Miller Tabak & Co in New York.
Bond prices rose after the jobless claims data was issued as investors grew more cautious, while Wall Street appeared set for a weak stock-market opening.
The GDP reading was the final one for the first quarter. The Commerce Department initially said it shrank 6.1 percent, then revised that to 5.7 percent and finally to a 5.5 percent fall. GDP is expected to slip again in the second quarter ending June 30 though less severely than in the first quarter.
The economic data we've seen so far for the second quarter suggest the preliminary number for the second quarter will show a modest decline, maybe half the rate we saw in the first quarter, said Gary Thayer, senior economist with Wells Fargo Advisors in St. Louis, Missouri.
The GDP report reflected an economy still deep in recession as the year began, though the Paris-based Organization for Economic Cooperation and Development predicted this week the U.S. downturn will bottom out this year and be followed by a soft recovery in 2010.
Consumer spending, which fuels two-thirds of U.S. economic activity, increased at a downwardly revised 1.4 percent rate instead of the 1.5 percent previously estimated. Weak job markets and falling home prices are expected to dampen spending for some time.
Partly accounting for the revised GDP figure, the department said companies cut inventories at a slightly less vigorous rate in the first quarter than thought previously. Business inventories declined at an $87.1 billion rate instead of $91.4 billion, meaning they subtracted less from growth.
Reflecting the weak pace of global economic activity, exports plunged at a 30.6 percent rate in the first quarter instead of the 28.7 percent estimated a month ago. That was the steepest drop in foreign sales in 40 years. Imports dropped at a 36.4 percent rate, the steepest since the summer of 1947.
The department said the drop in exports cut 4.16 percentage points from GDP.
Overall business investment plunged at a record 37.3 percent rate during the first quarter, while spending on homebuilding fell 38.8 percent for its biggest quarterly tumble since early 1980.
Nonetheless, corporate profits grew at a 1.4 percent rate during the first quarter, slightly better than the 1.1 percent rise estimated a month ago, after falling 10.7 percent in the final three months of last year.
(Additional reporting by Alister Bull; Editing by James Dalgleish)