U.S. economy contracts less in Q1

By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. economy shrank slightly less in the first quarter than initially estimated, while corporate profits rebounded, according to government data on Friday that pointed to moderation in the recession.

Perceptions that the worst of the 17-month-old downturn was over pushed consumer confidence to its highest in eight months in May, and a report showing business activity in New York City expanded in May for the first time since January 2008 offered a further hint the recession was abating.

Gross domestic product, which measures total goods and services output within U.S. borders, contracted at a 5.7 percent annual rate in the first quarter, the U.S. Commerce Department said, less than the initial 6.1 percent estimate. This followed a 6.3 percent fall in the fourth quarter.

While the drop was still steep, recent data, such as housing and new filings for unemployment benefits, have hinted at an easing in the rate at which the economy was tumbling and many economists expect growth to resume by year-end.

Still, output has declined for three straight quarters for the first time since 1974-1975 in a contraction that is the deepest since at least the 1950s. Already, the recession is the longest since the Great Depression, although much less severe.

"The recession is easing. The second quarter is shaping up to be a smaller decline of about 3.0 to 3.5 percent. It should be the last of the negative quarters," said Christopher Low, chief economist at FTN Financial in New York.

But the positive outlook for the economy was tainted by a report showing business activity in the country's Midwest unexpectedly fell sharply in April, likely reflecting troubles in the automotive sector.

U.S. stock indexes ended more than 1 percent higher as the rebound in corporate profits and the upbeat consumer confidence report helped to underpin investor morale. A rally in commodity prices lifted shares of natural resource companies.