The U.S. economy slowed sharply in the spring, growing at an annual rate of just 1.1 percent, but businesses showed signs of renewed willingness to invest and improved bottom lines, a government report said Thursday.

The Commerce Department's latest reading Thursday on gross domestic product in the April-June quarter was unchanged from its initial estimate a month ago. GDP measures the total value of goods and services produced within the United States and is considered the best barometer of the country's economic health.

The 1.1 percent growth rate marks a slowdown from the brisk 5 percent pace posted in the first three months of the year.

Beyond that, analysts believe the economy picked up a bit in the current quarter, with some estimates ranging from growth rates of around 2 percent to 3 percent. For the second half of this year, some economists are predicting sluggish to moderate growth.

A second report provided fresh evidence of a lackluster job market.

New claims for unemployment insurance rose by 8,000 last week to a seasonally adjusted 403,000, the highest level since July 6, the Labor Department said. Economists were expecting claims to go down.

The shape of the recovery ultimately will be determined by consumers and the willingness or reluctance of businesses to spend and invest in the months ahead.

Optimists are betting that consumers will keep their pocketbooks and wallets open and that businesses will slowly step up investment, helping along the recovery. Pessimists worry that they won't.

Although most economists don't foresee the economy sliding back into a feared "double dip" recession, the economy's struggles pose a challenge for President Bush and will be a key topic for voters heading into the November elections.

Hoping to give a boost to the recovery, the Federal Reserve has held short-term interest rates steady all year long.

Low rates might motivate continued spending by consumers and induce businesses to increase capital spending and hiring, forces that would bolster economic growth.

In Thursday's report, consumer spending grew at a rate of 1.9 percent in the second quarter, unchanged from the government's previous estimate, but down from a 3.1 percent growth rate in the first quarter.

However, spending on nondurable goods such as foods and clothes was revised upward, inching up at a rate of 0.1 percent, as opposed to a 0.6 percent rate of decline estimated a month ago. Revised figures showed spending on big-ticket "durable" goods as well as services rising moderately in the second quarter, but a little less brisk than previous estimates.

Consumers are the mainstay of the economy because their spending accounts for two-thirds of all economic activity.

Businesses in the second quarter cut spending on plants, office buildings and other structures at a rate of 17.7 percent, a deeper cut than initially estimated. But investment in equipment and software, after six straight quarters of declines, increased at a rate of 3.1 percent in the second quarter, stronger than the 2.9 percent growth rate previously estimated.

A turnaround in capital investment by the nation's businesses is considered a prime ingredient to the economy's full recovery.

Thursday's report also showed that after-tax profits of U.S. corporations increased at an annual rate of 1.7 percent in the second quarter, down slightly from a 2 percent growth rate in the first. Second-quarter profits are down 12.4 percent from the same period a year ago.

The recent stock market slide, stoked by a wave of accounting scandals, has shaken consumers confidence in the economy and made businesses more wary of making big commitments to hiring and capital investment, factors restraining the recovery.

So far, however, eroding consumer confidence, the roller-coaster stock market and a stagnant jobs market haven't caused consumers to seriously scale back spending. That's because those potentially negative factors have been offset by positive ones, including low interest rates and a refinancing boom that has left people with extra cash.

Retail sales were solid in July, helped out by free-financing for cars, and home sales for the month were strong.

While more recent back-to-school sales have been sluggish, that should be more than offset by what economists expects will be robust auto sales for August.