Economy wasn't quite so feeble in Q1

The economy wasn’t quite as frail as initially believed in the first quarter as housing construction provided more of a boost, while sluggish business stockpiling and the trade gap posed less formidable headwinds.

The nation’s gross domestic product, a measure of all the goods and services produced in the U.S., grew at a seasonally adjusted annual rate of 0.8%, compared with the 0.5% first estimated, the Commerce Department said Friday. Economists expected a revision to 0.9%.

The 0.8% gain was still anemic, but it could give the Federal Reserve more confidence that the economy is on solid ground and poised to return to its post-recession baseline of modest 2%-plus growth after two listless quarters. Many economists believe growth in the current quarter could approach 3%. The Fed has indicated positive economic reports in coming weeks could prod it to raise interest rates again as soon a mid-June meeting. Fed policymakers have held a key rate steady since lifting it in December for the first time in nearly a decade.

The upward revision to the economy's performance in the first quarter "gives us more confidence that growth will hit its marks in the second quarter," Chris Rupkey, chief financial economist of Bank of Tokyo-Mitsubishi, wrote in a note to clients.

The housing recovery has been a pillar of the economy, and residential investment jumped 17.1%, up from the 14.8% previously believed.

And although businesses added less to their inventories, the pullback wasn’t as sharp as first estimated, subtracting 0.2% from growth, below the 0.33% first estimated.

Business investment more broadly was a bit weaker than previously believed. Non-residential spending fell 6.2% compared with the initial estimate of a 5.9% decline. Equipment spending plummeted 8.9%. A weak global economy, strong dollar and the oil industry’s downturn have suppressed exports and business spending for nearly two years. The dollar has weakened in recent months and oil prices this week briefly topped $50 a barrel for the first time since October, leading economists to predict that factory output and capital spending will mount a gradual rebound.

Exports declined 2% last quarter, less sharply than first believed, while imports dipped 0.2% compared with the slight gain previously estimated. That narrowed the trade deficit, posing less of a drag on growth.

The government’s estimate for consumer spending, which makes up about 70% of economic activity, was unchanged at 1.9%. That made consumption a relative bright spot, though the pace of growth slowed from 2015 in part because of weak demand for utilities amid unseasonably warm weather. Consumers have benefited from steady job growth, low gasoline prices and reduced household debt, providing shoppers more discretionary cash. Consumer spending likely picked up noticeably in the current quarter, economists say.