WASHINGTON (Reuters) - The U.S. economy slowed less than feared in the first quarter due largely to a jump in consumer spending, providing a slightly more encouraging outlook for growth this year.

Gross domestic product increased at a 1.4 percent annual rate instead of the 1.2 percent reported last month, the Commerce Department said in its final assessment for the period on Thursday.

The reading was the worst since the second quarter of 2016 but above analysts’ expectations, easing fears the economy had been hobbled at the start of this year. The government had pegged first-quarter growth at a paltry 0.7 percent in its first estimate in April.

“The upward revision occurred even with a downward revision to the inventory data, which has favorable implications for the adding up of second-quarter growth,” said Daniel Silver, an economist at J.P. Morgan.

Economists polled by Reuters had expected GDP growth to be unrevised at 1.2 percent in the first quarter. The economy tends to underperform in that period relative to the rest of the year due to perennial issues with the calculation of the data. The government has said it is working to resolve those issues.

The U.S. dollar .DXY briefly edged up after the release of the data before retracing earlier losses against a basket of currencies. Prices of U.S. Treasuries were trading lower and stocks on Wall Street were down sharply.

First-quarter economic growth was boosted by an upward revision to consumer spending, which accounts for more than two-thirds of U.S. economic activity. Consumer spending rose at a 1.1 percent pace, the weakest reading since the second quarter of 2013 but almost double the 0.6 percent reported last month.

Despite the upward revision to GDP, the Trump administration’s stated target of swiftly boosting annual U.S. economic growth to 3 percent remains a challenge.

A sustained average growth rate of 3 percent has not been achieved in the United States since the 1990s. The U.S. economy has grown an average 2 percent since 2000 and it expanded only 1.6 percent in 2016, which was the weakest growth in five years.

FILE PHOTO: A customer exits after shopping at a Macy's store in the Brooklyn borough of New York, U.S., on May 11, 2017. REUTERS/Brendan McDermid/File Photo

President Donald Trump’s economic program of tax cuts, regulatory rollbacks and infrastructure spending has yet to get off the ground five months into his presidency.

Details of the White House’s tax plan remain sparse as Trump advisers attempt to win over fiscally conservative Republicans in Congress who want any changes to ultimately be revenue-neutral.

Initial signs that economic growth re-accelerated sharply in the second quarter have also faltered in the face of recent disappointing data on retail sales, manufacturing production and inflation. Housing data has also been mixed.

The Atlanta Federal Reserve is currently forecasting annualized growth of 2.9 percent in the second quarter.

LABOR MARKET STILL STRONG

Other data on Thursday showed the job market was still flashing a green light.

The Labor Department reported that the number of Americans filing for unemployment benefits last week rose slightly, but the underlying trend remained consistent with a tight labor market. The unemployment rate fell to a 16-year low in May.

U.S. exporters also flexed more muscle in the first quarter. Exports for the period were revised to show a 7.0 percent rate of growth from the previously reported 5.8 percent. Exports in the fourth quarter fell at a rate of 4.5 percent.

Business spending on equipment was revised to show it increasing at a rate of 7.8 percent in the January-March period rather than the 7.2 percent previously estimated.

Businesses accumulated inventories at a rate of $2.6 billion in the first quarter, rather than the $4.3 billion reported last month. Inventory investment rose at a rate of $49.6 billion in the fourth quarter of last year.

Inventories subtracted 1.11 percentage point from GDP growth in the first quarter instead of the 1.07 percentage point previously reported.

The government also reported that corporate profits after tax with inventory valuation and capital consumption adjustments fell at an annual rate of 2.7 percent in the first quarter after rising at a 2.3 percent pace in the prior three months.