U.S. economy grew at 2.4 percent in Q1

WASHINGTON - The U.S. economy grew at a modest 2.4 percent annual rate from January through March, slightly slower than initially estimated. Consumer spending was stronger than first thought, but businesses restocked more slowly, and state and local government spending cuts were deeper.

The Commerce Department said Thursday that economic growth in the first quarter was only marginally below the 2.5 percent annual rate the government estimated last month. That's still much faster than the 0.4 percent growth during the October-December quarter.

Most economists think growth is slowing to around 2 percent annually in the April-June quarter as the economy adjusts to federal spending cuts, higher taxes, and further global weakness. Still, many say the decline might not be as severe as once thought. That's because solid hiring, surging home prices, and record stock gains should keep consumers spending.

Consumer spending accounts for 70 percent of economic activity as measured by the gross domestic product. GDP is the economy's total output of goods and services, from haircuts and computers to trucks and aircraft carriers.

The government's second look at first-quarter growth showed consumer spending roared ahead at 3.4 percent annually. That's the fastest spending growth in more than two years and even stronger than the 3.2 percent rate estimated last month.

Healthy consumer spending shows many Americans are shrugging off an increase this year in Social Security taxes that has reduced most paychecks.

A big reason consumers have been able to withstand the higher taxes is that the job market has improved. Employers have added an average of 208,000 jobs a month since November.

The weakest area of the economy remains government spending, which fell for the 10th time in the last 11 quarters. The 4.9 percent rate of decline was even larger than first estimated, reflecting further drops in defense spending and weaker activity at the state and local level.

Economists were puzzled by the steeper decline at the state and local level. Spending among those governments fell in the first quarter at an annual rate of 2.4 percent - double the initial estimate and the biggest quarterly drop in two years.

And with the federal government furloughing workers and trimming other spending to meet the mandates of the sequester, government activity will be a drag on growth for the rest of the year.