The U.S. economy shrank less than expected in the second quarter and fewer workers filed new claims for unemployment benefits last week, supporting views the economy was starting to heal after a severe recession.
Gross domestic product fell at a 1 percent annual rate according to a Commerce Department report on Thursday, unchanged from last month's estimate and better than market expectations for a 1.5 percent contraction.
Real GDP, which measures total goods and services output within U.S. borders, collapsed at a 6.4 percent rate in the January-March period.
A separate report from the Labor Department showed the number of U.S. workers filing new claims for jobless benefits fell last week to 570,000 from 580,000 the prior week.
"We've been expecting to see signs of improvement in the economy consistent with the belief that we'll get growth in the third quarter for the first time in over a year," said David Resler, chief economist at Nomura Securities, in New York.
"Everything that we've seen in recent weeks reinforces that degree of optimism."
U.S. stock index futures were flat after the data, while prices of government bonds, which are considered a safe haven, were steady at lower prices.
The Commerce Department's preliminary report also showed corporate profits after taxes rose 2.9 percent in the second quarter, likely a function of cost cutting measures by companies, after increasing 1.3 percent in the first three months of the year.
Businesses were more aggressive in reducing inventories in the second quarter than previously thought. Business inventories dropped a record $159.2 billion instead of the $141.1 billion estimated last month, lopping off 1.39 percentage points from the overall GDP figure.
Inventories fell by $113.9 billion in the first quarter. Excluding inventories, GDP rose 0.4 percent, the department said.
However, the blow from the sharp decline in inventories was softened by a smaller-than-initially estimated drop in consumer spending.
Consumer spending — which accounts for about 70 percent of U.S. economic activity — fell 1.0 percent in the second quarter rather than the 1.2 percent rate earlier estimated by the department.
While data ranging from housing to factory activity continue to suggest the worst recession since the Great Depression of the 1930s has probably ended or is winding down, weak consumer spending is seen holding back the recovery momentum.
Uncertainty over the strength of the recovery has left companies reluctant to start hiring new workers, though the pace of layoffs has slowed down significantly.
The number of workers on long-term unemployment benefits fell to 6.133 million in the week ended Aug. 15 from 6.252 million the prior week, the Labor Department said. That was the lowest since the week ending April 4.
Also helping to minimize the decline in overall real GDP was the drop in exports, which was not as steep as previously thought. Exports fell 5 percent rather than the 7 percent drop reported last month. Exports tumbled 29.9 percent in the first quarter.
Residential fixed investment fell 22.8 percent in the second quarter, less steep than the 29.3 percent plunge estimated last month, the department said.
