2018.05.3023:01:00UTC+00U.S. 1st Quarter Growth Revised Lower on Weak Consumer Spending

U.S. economic growth slowed slightly more than previously thought in the first quarter as consumer spending rose at its weakest pace in nearly five years, but activity is already accelerating against the backdrop of a tightening labor market and tax cuts.

Gross domestic product grew at a 2.2 percent annual rate, the Commerce Department said in its second estimate of first-quarter GDP, instead of the initially posted 2.3 percent pace. While business spending was stronger than initially estimated, inventory investment was far smaller than the government reported last month.

The economy expanded at a 2.9 percent rate in the fourth quarter. Economists expect a $1.5 trillion income tax cut package, which came into effect in January, will fuel quicker economic growth this year and lift annual GDP growth close to the Trump administration's 3 percent target.

Growth is also expected to get a boost from increased government spending. April data including retail sales, trade and industrial production suggest the economy regained speed early in the second quarter. Growth estimates for the second quarter are above a 3 percent rate.

An alternative measure of economic growth, gross domestic income (GDI) increased at a 2.8 percent rate in the January-March quarter, the fastest since the third quarter of 2016. GDI rose at a 1.0 percent pace in the fourth quarter.

According to a separate report, the ADP national employment data showed private sector payrolls increased by 178,000 jobs in May after rising 163,000 in April. The data was released ahead of the government's more comprehensive employment report on Friday.

Steady growth and a robust labor market are seen encouraging the Federal Reserve to hike interest rates next month. The U.S. central bank increased borrowing costs in March and forecast at least two more rate hikes for this year.