THE US economy was weaker than previously thought in the first quarter, making it more vulnerable to the recent financial market turmoil caused by the European sovereign debt crisis.

The commerce department yesterday reported that US gross domestic product rose at an annualised rate of 3 per cent in the first quarter, a downward revision from last month’s initial estimate of 3.2 per cent growth.

Economists had been expecting US output in the first quarter to be revised upwards to 3.4 per cent, which would have placed it in a slightly better position to tackle the distress in global markets.

“This is a very modest recovery by historical standards,” said Nigel Gault, US economist at IHS Insight, which is predicting faster growth in the second quarter before a slowdown in the second half, as the full impact of the European crisis is felt across the US economy. “This recovery will be a long, drawn out slog.”

The most worrying aspect of yesterday’s GDP revision was the slower rate of business investment, which went from 4.1 per cent in last month’s estimate to 3.1 per cent. Spending by companies has been one of the hallmarks of the recovery so far.

Meanwhile, the government’s estimate of consumer spending growth in the first quarter was revised downwards from 3.6 per cent to 3.5 per cent, but this was less of a concern because it was driven by lighter spending than expected on utilities during the late winter months, rather than less spending on durable and non-durable goods.

Separately, initial jobless claims fell by 14,000 to 460,000 last week, the labour department said, highlighting the continued strain in the US labour market. The number seeking unemployment benefits has remained stubbornly high recently, even as employers have started creating jobs again in the wake of the recession.

Economists had expected initial jobless claims to drop at a faster pace to 455,000 in the week ending May 22nd. – Copyright The Financial Times Limited 2010