June 25 (Bloomberg) -- The U.S. economy shrank at a 5.5 percent annual rate in the first quarter, reflecting declines in inventories, housing and business spending that have since eased. The contraction in gross domestic product, which was smaller than estimated last month, capped the worst six-month performance in half a century, revised figures from the Commerce Department showed today in Washington. A report from the Labor Department showed jobless claims climbed last week. Reports this quarter showed housing and consumer spending have stabilized, signaling the recession may soon end as government and Federal Reserve stimulus efforts take hold. Fed officials yesterday acknowledged the contraction was slowing while maintaining the economy may “remain weak for a time” as unemployment rises and credit stays tight. “The economy is still in recession but we’re slowing down the rate of descent,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. “This quarter will show a much smaller rate of decline, about half that of the first quarter. Down slower is the new up.” The future’s contract on the Standard & Poor’s 500 index fell after the reports as the jump in jobless claims raised concern the labor market remained stagnant. The contract was down 0.6 percent to 892.9 at 9:14 a.m. in New York. Treasuries were little changed. Exceeds Forecasts The drop in GDP, the sum of all goods and services produced, was smaller than the median forecast in a Bloomberg survey of economists. Estimates ranged from declines of 5.9 percent to 5.1 percent. This is the last of three estimates the government issues on economic growth. The world’s largest economy shrank at a 6.3 percent annual rate from October to December. The number of Americans filing claims for unemployment benefits unexpectedly rose last week and the total number receiving payments increased, indicating the labor market may take longer to stabilize. Initial jobless claims rose by 15,000 to 627,000 in the week ended June 20, from a revised 612,000 the week before, the Labor Department said today in Washington. Consumer spending, which accounts for about 70 percent of the economy, rose at a 1.4 percent last quarter, less than previously estimated. Purchases dropped at a 4.3 percent annual rate in the final quarter of 2008, the biggest slump since 1980. Smaller Deficit The trade deficit from January through March was estimated at $296.8 billion, down from the $302.6 billion projected last month. A narrowing from the prior three months contributed 2.4 percentage points to growth. Figures released so far indicate trade will again contribute to GDP this quarter, though not as much as in the first three months of the year, economists said. Residential construction dropped at a 39 percent pace last quarter, the most since 1980, today’s report showed. The housing slump, now in its fourth year, is easing. Builders broke ground on more homes than forecast in May, with single-family starts posting a third straight gain. Sales of previously owned houses rose for the second consecutive month. Business investment also collapsed last quarter, shrinking at a 37 percent annual pace, the biggest decline since records began in 1947. Orders for capital goods excluding aircraft, a proxy for future spending on new equipment, jumped in May by the most since 2005, Commerce reported yesterday. More Production Some companies are seeing signs of stabilization. Nucor Corp., the second-largest U.S. steelmaker, may boost plant operating rates to as much as 60 percent of capacity in the third quarter as customers use up inventories, Chief Executive Officer Dan DiMicco said. “We have seen distributors begin to order at a level consistent with real demand,” DiMicco said in a Bloomberg television interview yesterday in New York. Still, “we will not be happy, and our competitors will not be happy, until we are north of the 80 percent levels again,” he said. Inventories fell at an $87.1 billion annual pace last quarter, the biggest drop on record, today’s report showed. The Fed’s preferred measure of inflation, which is tied to consumer spending and strips out food and energy costs, rose at a 1.6 percent annual rate. “The pace of economic contraction is slowing,” Fed officials said in a statement at the end of their two-day meeting yesterday. Household spending “remains constrained by ongoing job losses, lower housing wealth and tight credit.” At the same time, the slack in the economy means “inflation will remain subdued for some time,” they said. Auto Slump Part of that slack is being created by the bankruptcies of General Motors Corp. and Chrysler LLC. Earl Hesterberg, chief executive officer of Group 1 Automotive Inc., the owner of 99 U.S. and U.K. dealerships, this month said car sales remain weak. “We now have eight or nine months of bouncing along the bottom,” Hesterberg said in an interview, referring to the industry. “Really we don’t see much difference from month to month.” Still, other areas show signs of improvement this quarter. Retail sales rose in May for the first time in three months, government figures showed. The economy may not yet need a second stimulus after the administration’s $787 billion initiative, which includes tax cuts and spending on infrastructure, President Obama said at a White House news conference this week. “I think it’s important to see how the economy evolves and how effective the first stimulus is,” the president said.

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