US first-quarter GDP growth revised lower to 1.6% pace

WASHINGTON, May 28 (Reuters) – U.S. economic growth was not a strong as initially thought in the first quarter, and momentum is set to slow this quarter, with the war ​with Iran stoking inflation and squeezing households finances.

Gross domestic ‌product increased at a 1.6% annualized rate last quarter, the Commerce Department’s Bureau of Economic Analysis said in its second estimate of first-quarter GDP on Thursday. Growth was previously reported to have advanced at a 2.0% pace. Economists polled ‌by ​Reuters had expected that GDP growth would ⁠be unrevised at a ⁠2.0% rate.

The economy grew at a 0.5% pace in the fourth quarter. The downgrade to the first-quarter GDP estimate reflected downward revisions to inventory investment and consumer spending.

Overall economic activity is mostly ​being driven by artificial intelligence-related spending.

Growth in consumer spending, which accounts for more than two-thirds of the economy, was revised down ⁠to a 1.4% rate from the ⁠previously reported 1.6% pace. Hefty tax refunds provided some ​cushion to households from soaring gasoline prices.

Business spending on equipment increased ​at an unrevised 17.2% growth pace. Final sales to private ‌domestic purchasers, which exclude government, trade and inventories, rose at a 2.4% pace. That as a slight downgrade from the previously estimated 2.5% growth rate.

Profits from current production rose at a $40.4 billion rate ⁠in the first quarter, a sharp slowdown from the $246.9 billion growth pace in the fourth quarter.

When measured from the income side, the economy grew ⁠at a 0.9% ‌rate in the January-March quarter. Gross domestic income ⁠increased at a 1.6% pace in the fourth quarter.

The ​average ‌of GDP and GDI, also referred to as ​gross domestic ⁠output and considered a better measure of economic activity, grew at a 1.3% rate. Gross domestic output grew at a 1.1% rate in the October-December quarter.

Economists expect the conflict in the Middle East to weigh on economic growth from the second quarter.

(Reporting by Lucia Mutikani; Editing ​by Andrea Ricci)