US economy grows 2.2% in 1Q, slightly weaker than expected

WASHINGTON, May 30 (Reuters) - U.S. economic growth slowed slightly more than initially thought in the first quarter amid downward revisions to inventory investment and consumer spending, but income tax cuts are likely to boost activity this year.

Gross domestic product increased at a 2.2 percent annual rate, the Commerce Department said in its second estimate of first-quarter GDP on Wednesday, instead of the previously reported 2.3 percent pace. The economy grew at a 2.9 percent rate in the fourth quarter.

There are signs GDP growth gathered momentum early in the second quarter, with solid consumer spending, business investment on equipment and industrial production in April. But the housing market appears to have taken a further step back

Economists expect a $1.5 trillion income tax cut package, which came into effect in January, will spur faster economic growth this year and lift annual GDP growth close to the Trump administration's 3 percent target.

Economists had expected first-quarter GDP growth would be unrevised at a 2.3 percent pace. The government also reported that after-tax corporate profits surged at a 5.9 percent rate last quarter after increasing at a 1.7 percent pace in the fourth quarter.

That was the fastest pace of growth in profits since the first quarter of 2016 and reflected a boost from the reduction in the corporate tax rate to 21 percent from 35 percent. According to the Commerce Department, taxes on corporate income decreased $117.4 billion in the first quarter.

The tax code revamp also bolstered dividends received from the rest of the world. Wages and salaries increased $119.5 billion in the first quarter, an upward revision of $3.1 billion from earlier estimates.

As a result, gross domestic income (GDI) an alternate measure of economic growth increased at a 2.8 percent rate in the January-March quarter. GDI rose at a 1.0 percent 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, increased at a 2.5 percent rate in the first quarter. That followed a 2.0 percent rate of growth in the prior period.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, braked to a 1.0 percent rate in the first quarter, rather than the previously reported 1.1 percent pace. That was the slowest pace since the second quarter of 2013 and followed the fourth quarter's robust 4.0 percent growth rate.

Inventories increased at a $20.2 billion rate in the first quarter, rather than the $33.1 billion pace estimated last month. Inventory investment contributed 0.13 percentage point to GDP growth instead of 0.43 percentage point.

The smaller inventory accumulation bodes well for GDP growth in the second quarter. The trade deficit in the first three months of the year was a bit bigger than initially thought. Trade was neutral to GDP growth. It was previously reported to have contributed 0.20 percentage point to output.

Business spending on equipment was revised up to a 5.5 percent growth rate in the January-March quarter from the 4.7 percent pace estimated last month. That was still a moderation in investment following double-digit growth in the second half of 2017.

Investment in homebuilding fell at a 2.0 percent rate in the first quarter instead of being unchanged as reported last month.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)