U.S. consumer spending cools GDP in 1st quarter

Growth in the nation's economy cooled in the first quarter of the year as consumer spending - the biggest driver - was held back by rising food and fuel costs.

The gross domestic product grew at an annual rate of 1.8 percent in the January-March quarter, down from 3.1 percent in the previous three months, the Commerce Department reported Thursday.

Another factor in the GDP slowdown was continuing high unemployment, and a second report Thursday showed that more people applied for unemployment benefits last week, the first increase in three weeks and evidence that the job market is still sluggish.

The number of people seeking benefits last week rose 10,000 to a seasonally adjusted 424,000, the Labor Department said. No states cited extreme weather as a factor, a department spokesman said. Tornadoes and floods have devastated several states in the Midwest and South in the last month.

Applications stubbornly remain above 375,000, the level consistent with sustainable job growth. They peaked at 659,000 during the 2007-09 recession.

"The job market isn't exactly improving with leaps and bounds," Jennifer Lee, an economist at BMO Capital Markets, said in a note to clients. "Businesses are hiring but are likely holding back until they're more comfortable and confident with the current economic environment."

Still, the four-week average, a less volatile measure, declined for the first time in seven weeks to 438,500.

Employers stepped up hiring this spring, but some economists worry that rising applications indicate hiring is slowing.

In the GDP report, the Commerce Department said household purchases had risen at a 2.2 percent annual pace from January through March, less than the previous estimate of 2.7 percent. The overall growth figure of 1.8 percent was unchanged from last month's estimate.

Thursday's report was the second estimate on the first-quarter GDP; the final figure will be released late in June. The GDP, the broadest gauge of economic performance, measures the value of all goods and services produced in the United States.

Treasury securities climbed as the report and jobless-claims data raised concern that last quarter's slowdown will persist. Manufacturing, at the forefront of the recovery that began in June 2009, may also cool this quarter amid parts shortages resulting from the disaster in Japan.

"Consumer spending was pretty anemic last quarter, and households are likely to be somewhat restrained going forward," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott L.L.C. in Philadelphia. "Economic growth will run a little faster than the first quarter but nothing blockbuster."

Another part of the GDP report also was worrisome: Corporate profits fell 0.9 percent in the first quarter, their first drop since the last quarter of 2008 as the effect of the collapse of Lehman Bros. Holdings was being felt across the economy.

The overall GDP was unchanged from the earlier estimate because bigger gains in inventories and a smaller decline in commercial construction compensated for the slowdown in household spending.

The first quarter's rise in consumer purchases, which account for 70 percent of the economy, followed a 4 percent rise in the fourth quarter.