The U.S. economy grew more vigorously in the first quarter than first thought, expanding at a 3.5 percent annual rate, the government said on Thursday in a report showing fewer imports of goods and services than estimated a month ago.

Previously, the Commerce Department (search) estimated that gross domestic product (search), or GDP, which measures total goods and services production within U.S. borders, had grown at a 3.1 percent annual rate in the three months from January through March — at the time the slowest advance in GDP in two years.

The upwardly revised growth still represents a modest slowing from the fourth quarter's 3.8 percent pace and was slightly below Wall Street economists' forecasts for a 3.6 percent rate. Growth in spending by both consumers and businesses weakened from fourth-quarter rates.

Imports increased at a 9.1 percent annual rate in the first quarter instead of 14.7 percent as Commerce estimated last month. That benefits GDP because imports subtract from the calculation of national output.

But some of the benefit from slower import growth was lost because inventories — which are a positive for GDP — grew at a $68.4-billion annual rate rather than $80.2 billion, still well ahead of the fourth quarter's $47.2-billion pace.

The latest GDP data buttressed Federal Reserve (search) policy-makers' estimate that any economic "soft patch" in the early part of the year might be misleading. In minutes from its May 3 Federal Open Market Committee (search) meeting, which were released earlier this week and that implied the U.S. central bank will keep raising interest rates, the Fed said a slowdown in growth likely would be "transitory."

The Fed's focus in moving credit costs higher during the past year has been on the potential threat from mounting price pressures.

The revised GDP report showed a price gauge favored by Fed Chairman Alan Greenspan (search) — personal consumption expenditures excluding food and energy — increased at a 2.2 percent annual rate in the first quarter, the same as estimated last month, following a 1.7 percent rate of advance in the fourth quarter.

The revised GDP report offered a first look at corporate profits for the period. Profits after taxes, calculated at an annual rate, were running at $983 billion in the first three months of 2005, up from $973 billion in the fourth quarter. But the rate of increase in after-tax profits slowed to 1 percent from a sharp 12.5 percent jump in the fourth quarter when profits were rebounding from a contraction during the third quarter.