If the

Federal Reserve

raises interest rates next week, as widely expected, it will do so at a time when the U.S. economy appears to be moderating. But many economists said they're not worried.

Gross domestic product grew 3.9% in the first quarter, according to the Commerce Department, down from the 4.1% pace reported in the fourth quarter and below the sizzling 8.2% growth in the third quarter.

The downward revision to GDP surprised economists, who had expected it to be unchanged at 4.4%. While the report is largely considered old news, it does come on the heels of a disappointing durable goods report and higher-than-expected unemployment claims.

Durable goods fell 1.6% in May after a 2.6% decline in April. Meanwhile, initial unemployment claims rose 13,000 in the latest week, pushing the four-week moving average up 1,000 to 344,250.

Joseph Abate, an economist at Lehman Brothers, said that, at most, the data show a pause in activity, not a retrenchment. He is looking for 4.8% growth in the second quarter, 4.2% growth in the third, and 4.5% in the final three months of the year.

"What caused the revision

to first-quarter GDP was a surge in imports, which reflects strong consumer demand and business demand for capital equipment," he said. Imports act as a drag on GDP.

GDP would have been higher if not for the deterioration in the trade balance. The Commerce Department said the trade deficit widened to a record $48.3 billion in April.

Asha Bangalore, economist at Northern Trust, said it's too soon to tell whether the economy is moderating. "I think it's premature to make a judgment," she said. "We need to see some of the June numbers."

Investors won't have to wait long for those. The coming week will bring the Institute for Supply Management's manufacturing index for June and the all-important employment report. Economists are expecting nonfarm payrolls to rise 240,000 after climbing by 248,000 in May. The ISM index is expected to dip slightly to 61.2 in June from 62.8 in the prior month.

"The data we've seen solidifies the notion that the economy is growing at a nice, healthy rate but it's not leaping ahead," said Josh Feinman, chief economist at Deutsche Asset Management. "That's a big part of the reason why I think the Fed is going to be moving judiciously."

The Fed is widely expected to raise rates by 25 basis points next Wednesday and eurodollar futures contracts suggest traders expect 125 basis points of tightening by year-end.

The personal consumption expenditure price index rose at a 3.2% annualized rate in the first quarter, up from the 3% reported previously and well above the 1% increase during the fourth quarter.

The core rate, which excludes food and energy, rose at a 2% rate, up from the 1.7% pace reported previously, and the fastest pace since the third quarter of 2002. The core rate rose 1.2% in the fourth quarter.

The Bureau of Labor Statistics said the upward revision to the price index for GDP purchases "primarily reflected an upward revision to the implicit price of bank services."

"In other words, little else changed in the inflation picture but that one line," noted David Rosenberg, chief economist at Merrill Lynch.

Tony Crescenzi, chief bonds strategist at Miller, Tabak & Co, and contributor to

TheStreet.com's

sister site

RealMoney.com

, said consumers paid more for bank fees during the quarter for late charges, ATM fees and annual credit-card membership fees, among other things.

"The data underscore a bull case for the banking sector, which now derives a very high percentage of its revenue from fees and has enjoyed strong growth in fee income for a number of years now," he said. "The data also underscore the notion that the banking sector is now less vulnerable to the interest rate climate than in past years, as a smaller percentage of bank profits is now dependent on interest income than in past years."

Bonds were generally flat after the GDP report, with the yield on the 10-year note at 4.65%. Stocks were mostly higher, with the

S&P 500

up 3 points, or 0.3%, at 1144 and the

Nasdaq

up 15 points, or 0.8%, at 2031. The

Dow

gained 22 points, or 0.2% at 10,466.