The US economy grew much more slowly than previously thought in the first quarter and inflation was higher, a government report showed on Friday.
Separate reports, however, showed consumer sentiment rebounding in June and a jump in sales of existing homes in May - likely fuelled by a rush to lock in low interest rates before a probable Federal Reserve rate hike next week.
The Commerce Department surprised economists with a downward revision to first-quarter gross domestic product, cutting economic growth to a 3.9 percent annual rate from the 4.4 percent reported a month ago. Wall Street analysts had not expected the Commerce Department to change the GDP estimate.
While 3.9 percent is still a solid pace, the revision cut GDP - which measures all output within US borders - to below the 4.1 percent seen in the last quarter of 2004.
The government also ratcheted up a key gauge of inflation in the GDP report, confirming an acceleration in price rises that has fuelled expectations the Federal Reserve will begin raising interest rates from their 1958 lows next week to head off inflation.
The core price index for consumer spending - a favourite of Fed Chairman Alan Greenspan that cuts out volatile food and energy prices - gained at an annual rate of 2.0 percent in the quarter, a bump up from the 1.7 percent reported a month ago.
"It is a bit surprising that inflation was worse and consumption was up less," said Mark Vitner, senior economist at Wachovia Securities.
He said the worst in the run-up in inflation may already be past, however, with stronger real growth and lower inflation likely in the second half of the year, and should not prompt an aggressive run of interest-rate hikes.
HAPPY CONSUMERS BUY HOMES: The prospect of higher rates pushed home-buyers off the fence and into the market in May, propelling sales of existing homes to a record high, while consumer sentiment climbed this month, two reports also out on Friday showed.
The University of Michigan's final survey of consumer confidence for June showed its sentiment index rose to 95.6 from 90.2 in May.
Economists polled by Reuters had forecast a rise to 95.5 with increased optimism due to an improved employment picture, healthy economy and a dip in lofty gasoline prices.
A separate report showed home re-sales jumped unexpectedly by 2.6 percent to a record high in May as mortgage rates remained relatively low.
The National Association of Realtors said sales of previously owned homes rose to a seasonally adjusted annual rate of 6.80 million units in May from a downwardly revised 6.63 million unit pace in April.
"Various signs of macroeconomic activity point to a very robust economy. That provides greater confidence to consumers. If families feel financially secure, they are much more likely to go out and put down money for a big-ticket item like a house," said Frank Nothaft, chief economist at mortgage finance company Freddie Mac.
The Commerce Department said the reduction in its final assessment of first-quarter economic growth resulted from a sharp upward revision to imports - which subtract from GDP - and a downward revision to the amount consumers spent on bank services.
In its final snapshot of the first-quarter economy, the department said after-tax corporate profits rose 2.1 percent from the fourth quarter, a sharp upward revision from the 1.4 percent reported a month ago. Still, the climb was well below the 7.6 percent rise notched in the final three months of 2003.
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