The U.S. economy grew at a sluggish 1.3 per cent annual rate in the April-June quarter, the Commerce Department said Thursday, held back by drought in the Midwest which reduced farm production.

The number represented a revision by the Department from a previous estimate of 1.7 per cent.

Other data on the state of the U.S. economy released Thursday gave a mixed view of the health of the recovery: initial jobless claims – a measure of layoffs — have slackened, but durable goods orders have plunged and pending homes sales have fallen.

About half of the downward revision in GDP — $12 billion — came as the estimate for crop production was slashed. But slower growth in consumer spending and exports were other important factors.

Economists said that the drought would likely be a drag on growth in the July-September quarter.

But Paul Ashworth, chief U.S. economist at Capital Economics, said once the drought eases and crop yields rebound to normal levels, the farm sector will provide a boost to economic growth.

Growth of less than two per cent is typically too slow to lower unemployment, which was 8.1 per cent in August.

Jobless claims fall

But there was hope for the jobs market in last week’s initial claims numbers.

The number of Americans seeking unemployment benefits plunged 26,000 last week to a seasonally adjusted 359,000, the lowest level of weekly applications in nine weeks.

The Labor Department said Thursday that the four-week average, a less volatile measure, declined 4,500 to 374,000. That's the first drop in six weeks.

When claims consistently stay below 375,000, it typically indicates that hiring is strong enough to lower the unemployment rate.

Other economic figures released Thursday were mainly disappointing.

Businesses cut orders for long-lasting manufactured goods in August and the number of Americans who signed contracts to buy previously occupied homes fell in August from a two-year high in July.

Orders for durable goods plunged because of a huge drop in volatile commercial aircraft orders. But in a hopeful sign, orders that reflect business investment plans rose.

Investment plans on the rise

The Commerce Department said Thursday that total orders fell 13.2 per cent in August, the biggest drop since January 2009 when the country was in recession.

Aircraft orders fell by nearly 102 per cent, pulling down the headline figure.

Economists tend to pay more attention to core capital goods, which signal investment plans. Those orders rose 1.1 per cent. That's the first increase since May, although it follows steep declines in the previous two months. T

The National Association of Realtors said Thursday that its index of sales agreements dropped 2.6 per cent last month to 99.2.

A reading of 100 is considered healthy.

The slow growth and anaemic job creation prompted the Federal Reserve earlier this month to take steps to jump-start activity.

The Fed last week announced several major steps, including the purchase of $40 billion US in mortgage-backed securities a month until there is "substantial" improvement in the job market.

With files from The Associated Press