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A worker walks through the "Action Alley" at a new Wal-Mart store in Chicago, in this January 24, 2012 file photo.


U.S. economic growth was a bit slower than initially thought in the first quarter as businesses restocked shelves at a moderate pace and government spending declined sharply.

Gross domestic product increased at a 1.9-per-cent annual rate, the Commerce Department said in its second estimate on Thursday, down from last month's 2.2-per-cent estimate. The economy grew at a 3-per-cent rate in the fourth quarter.

The report also showed that after-tax corporate profits dropped for the first time in three years.

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A modest downward revision to consumer spending, which accounts for about 70 per cent of U.S. economic activity, and stronger import growth also accounted for the weaker first-quarter output. Economists polled by Reuters had expected growth would be revised down to a 1.9-per-cent pace.

Business inventories increased $57.7-billion (U.S.), instead of $69.5-billion, adding only 0.21 percentage point to GDP growth compared with 0.59 percentage point in the previous estimate.

While the small inventory build-up held back growth in the January-March quarter, restocking of shelves, retreating gasoline prices and an improving housing market should provide a boost to output in the second quarter.

Growth in the second quarter is currently estimated at a pace of about 2.5 per cent.

Excluding inventories, the economy grew at a revised 1.7 per cent rate in the first quarter, rather than 1.6 per cent and up from 1.1 per cent in the fourth quarter.

Consumer spending grew at a 2.7 per cent pace instead of the previously reported 2.9 per cent. It was still an acceleration from the fourth-quarter's 2.1 per cent pace.

Government spending fell at a much steeper 3.9 per cent rate, instead of the previously reported 3 per cent. Both exports and imports were much stronger than initially estimated.

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On the positive side, business spending on equipment and software was revised up to show a much firmer 3.9 per cent growth rate instead of the previously reported 1.7 per cent.

However, there are signs business spending weakened early in the second quarter.

Residential construction was revised slightly up and the retrenchment in investment on nonresidential structures was not as deep as previously thought.

When measured from the income side the economy expanded at a 2.7 per cent rate. Gross domestic income rose at a revised 2.6 per cent pace in the fourth quarter, previously reported as a 4.4 per cent rate. Real disposable personal income for the fourth quarter was revised down to a 0.2 per cent growth rate from 1.7 per cent.

For the first quarter, real disposable income rose 0.4 per cent.

While GDP and GDI estimates for a given quarter may differ because they are calculated using different data, over time, they tend to follow similar patterns of change.

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The department also said after-tax corporate profits fell at a 4.1-per-cent rate, the biggest decline since the fourth quarter of 2008, as taxes took a big bite from earnings. After-tax profits rose 1.1 per cent in the fourth quarter.

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