US economy: Recovery slower than first estimated

The US economy grew in the first quarter at a slower pace than previously calculated, reflecting smaller gains in consumer and business spending and highlighting the risks to the recovery posed by the European debt crisis.

The 3 per cent increase at an annual rate in gross domestic product was less than the median forecast of economists surveyed by Bloomberg News and compares with an advance estimate of 3.2 per cent issued last month, figures from the Commerce Department showed today in Washington. Corporate profits grew and incomes were revised down.

Households are gaining confidence this quarter as employment improves, and manufacturing is powering ahead as business investment and exports keep growing. The setback in stocks and rebound in the dollar caused by Europe’s financial troubles may cool spending here and abroad, giving the Federal Reserve additional scope to keep interest rates low.

“We are at a fairly fragile turning point,” said Julia Coronado, a senior U.S. economist at BNP Paribas in New York. “There’s a lot of headwinds that the economy is struggling with.”

More Americans than forecast filed applications for unemployment benefits last week, indicating firings persist even as the economy rebounds, figures from the Labor Department also showed today. Jobless claims fell by 14,000 to 460,000 in the week ended May 22. Economists forecast claims would drop to 455,000, according to the median estimate in a Bloomberg survey.

Stocks climbed after China pledged to maintain long-term investments in Europe. The Standard & Poor’s 500 Index rose 2 per cent to 1,089.4 at 10:23 am in New York. Treasury securities dropped, pushing the yield on the 10-year note up to 3.31 per cent.