* U.S. first-quarter GDP up at 2.4 percent annual rate
* Growth held back by austerity, slower inventory building
* Consumer spending revised up
* Jobless claims rise modestly in latest week
* Pending homes sales at 3-year high in April
By Jason Lange
WASHINGTON, May 30 A drop in government spending
dragged more on the U.S. economy than initially thought in the
first three months of the year, although consumer spending
looked relatively resilient to Washington's austerity drive.
Other reports on Thursday showed the number of new jobless
claims rose modestly last week while contracts on previously
owned homes climbed to a three-year high in April.
Together, the reports pointed to an economy that has held up
reasonably well despite government constraints, but nevertheless
faced headwinds severe enough to dissuade the U.S. Federal
Reserve from trimming its monetary stimulus in the immediate
"(The reports) paint the picture of an economy with
strengthening fundamentals that is facing significant fiscal
drag," said Ellen Zentner, an economist at Nomura in New York.
Gross domestic product, a measure of the country's total
economic output, expanded at a 2.4 percent annual rate during
the first quarter, down a tenth of a point from an initial
estimate, the Commerce Department said.
Analysts had forecast a 2.5 percent gain.
Government spending tumbled at a 4.9 percent annual rate,
which was faster than the 4.1 percent rate initially estimated.
Also holding back growth during the quarter, businesses outside
the farm sector stocked their shelves at a slower pace.
Washington has been tightening its belt for several years
but ramped up austerity measures in 2013, hiking taxes in
January and slashing the federal budget in March.
"We are dramatically under-spending in Washington," said
Michael Strauss, a market strategist at Commonfund in Wilton,
U.S. stocks rose and the dollar weakened as some investors
bet the data could dissuade the Fed from rushing to taper a bond
buying program that has acted as a bulwark against government
belt tightening. Prices for U.S. government debt pared losses.
Despite the signs of a substantial fiscal drag, the GDP
report also highlighted a resilience that has surprised many
Consumer spending, which accounts for more than two-thirds
of U.S. economic activity. rose at a 3.4 percent annual rate, up
two tenths of a point from the government's previous estimate.
Excluding the volatile inventories component, GDP rose at an
upwardly revised 1.8 percent rate, slightly higher than analysts
had forecast. This suggests that an improvement in hiring and
incomes over the last year has helped keep economic momentum
"(It's) steady as she goes," said Stephen Stanley, an
economist at Pierpont Securities in Stamford, Connecticut
Most economists still expect economic growth will slow
around the middle of 2013 as budget cuts are enacted. But growth
is seen picking up by year end, propelled by consumer spending
and an apparently entrenched housing market recovery.
In April, the National Association of Realtors' index of
signed contracts for home resales rose 0.3 percent to 106.0, the
highest reading since April 2010.
The housing market recovery is being driven by the Fed's
very easy monetary policy stance, which has kept mortgage rates
low. Although speculation the Fed could begin to curtail its
bond buying within a few months has driven mortgage rates
sharply higher in recent days, economists say the fundamentals
of the housing recovery still appear strong.
A separate report showed the number of Americans filing new
claims for unemployment benefits unexpectedly rose last week,
but not enough to suggest a shift in the recent pattern of
steady job gains.
Initial claims for state unemployment benefits increased
10,000 to a seasonally adjusted 354,000, above analysts'
expectations, Labor Department data showed.