U.S. Economy Grew 2.5% in First Quarter

America's gross domestic product, which expanded at a 0.4% annual rate from the third to the fourth quarter of 2012, grew at a 2.5% pace in the January-March period, according to a preliminary estimate from the Dept. of Commerce.

Consumer spending increased 3.2% from the previous quarter, marking the fastest pace since late 2010. Consumption was encouraged by low interest rates and improving home prices, analysts say. Autos sold at a 15.3 million-unit annual rate in the first quarter, the highest level since the same period in 2008.

Robust auto production added 0.24 points to first-quarter GDP. Stronger exports, inventory building and growth in home construction also contributed to the expansion.

But the quarter's gains were partially offset by a 4.1% reduction in government spending, which was the 10th such decline in the past 11 quarters. Private-sector investment in equipment and software, a gauge of business sentiment, advanced only 3% in the latest period compared with nearly 12% in the last quarter of 2012.

The Federal Reserve's preferred inflation measure, which is linked to consumer spending, rose 0.9% in the quarter. That gauge had climbed 1.6% in the October-December period. The Fed aims to keep inflation at about 2%.

Analysts expect full-year U.S. economic expansion of about 2%.