The U.S. economy turned in a worse performance than expected in the first quarter as it contracted at an annualized pace of 6.1 per cent, the U.S. Commerce Department said Wednesday.

Economists had been expecting a first-quarter decline at an annualized rate of five per cent.

In the final three months of 2008, the U.S. economy contracted at an annualized rate of more than six per cent — the worst performance in a quarter-century.

Over the first three months of this year, a rebound in spending by U.S. consumers was not enough to overcome a retreat in business spending and the biggest drop in U.S. exports in 40 years.

In the January-March period, consumer spending doubled expectations by growing at a 2.2 per cent annual rate, ending two straight quarters of declines. In the fourth quarter of last year, consumer spending fell at a 4.3 per cent annual rate.

Despite the bounce in consumer spending, U.S. businesses cut their spending on home building, commercial construction, equipment, software and inventories of goods.

U.S. government spending also dropped during the quarter, which had not happened since the end of 2005.

Falling inventories also weighed heavily on the economy, slicing 2.8 percentage points from U.S. gross domestic product.

"The unexpected depth of decline in first-quarter GDP is disappointing," said Royal Bank assistant chief economist Paul Ferley.

"Although the extent of weakness in government spending is not likely to persist going forward and the low level of inventories bodes well for future growth, monetary conditions will need to remain accommodative to reverse the weakness in investment spending and to keep consumer spending in the positive growth column," Ferley said in a written commentary.

The preliminary look at the health of the U.S. economy came just hours before the U.S. Federal Reserve was to make its next decision on monetary policy.

While the U.S. central bank is not expected to make any big announcements — a key lending rate is already between zero and 0.25 per cent — some economists are hoping the Fed will commit to holding rates down for an extended time.

Canada's first-quarter economic performance figures are due to be released on June 1. February figures are slated for release on April 30. In January, the economy contracted by 0.7 per cent.