The US economy contracted at a 5.5 per cent pace in the first quarter, not as bad as the previous estimate of a 5.7 per cent drop, the government reported on Thursday.

The Commerce Department’s final estimate of gross domestic product (GDP) still showed a horrific decline on the heels of a 6.3 per cent slide in the fourth quarter of 2008, reflecting the worst slump in decades.

The revision reflected a slightly better reading on consumer spending and lower imports, partly offset by declines in inventory and construction.

The figure was slightly better than the unrevised 5.7 per cent drop expected by analysts, but economists point out that the reading of January-March activity offers few clues on current conditions.

Many expect a much smaller decline in the current quarter that ends June 30 and growth returning by the third or fourth quarter.

The latest report showed consumer spending, the main driver of activity, rose 1.4 per cent in the first quarter, rebounding from a decrease of 4.3 per cent in the fourth.

Business investment outside the housing sector however plunged 37.3 per cent with investment in equipment and software slumping 33.7 per cent. The housing market showed major weakness persisting with a 38.8 per cent drop.

Both exports and imports fell, but the decrease in imports provided a boost to GDP of 2.39 percentage points. The drop in exports was 30.6 per cent while imports fell 36.4 per cent.

A factor in the weak GDP was a drawdown in inventories, which analysts say means businesses may need to ramp up production in the coming months. Stripping out inventory adjustment, a measure of economic activity known as final sales showed a 3.3 per cent decline.