US first quarter GDP revised slightly lower; austerity bites

A drop in government spending dragged more on the US economy than initially thought in the first three months of the year, a sign of increasing pain from Washington's austerity drive.

Another report on Thursday showed the number of new jobless claims rose last week, and together the data reinforced the view that the US economy may be entering yet another soft patch. Gross domestic product, a measure of the country's total economic output, expanded at a 2.4 per cent annual rate during the first quarter, down a tenth of a point from an initial estimate, the US Commerce Department said today. Analysts had forecast a 2.5 per cent gain.

That is much faster than the prior quarter's pace, but likely still too weak to fuel faster improvements in the labour market.

"We are dramatically under-spending in Washington," said Michael Strauss, a market strategist at Commonfund in Wilton, Connecticut. Investors took the data as a sign of weakness in the economy, and futures for US stock indexes trimmed gains while yields on US government debt fell slightly.

Growth in the first quarter was held back as government spending fell across all levels of government and as businesses outside the farm sector stocked their shelves at a slower pace.