United Parcel Service sees the U.S. economy outlook "a little muddier" than expected early this year, but growth should "chug along" at a slightly faster pace in the second half of the year.

Fuel prices are a wild card but have yet to reach levels that drain demand for UPS's higher-cost express products, Chief Executive Scott Davis said at a Sanford C. Bernstein & Co Strategic Decisions Conference.

"Clearly the first quarter was not as strong a performance in the U.S. as people would have thought going into 2011," Davis told the conference which was webcast. But the company's outlook is unchanged, with a view that gross domestic product will grow just under 3 percent this year, he added.

Prior investment in cost-saving technology and fuel-efficient aircraft will mean lower capital spending and more free cash flow going forward, Davis said.

UPS sees capital expenditure at 4 percent of revenue this year, compared with 5 to 8 percent historically, he said.

Growth areas include supply chain management for the healthcare industry, domestic shipments within China as the middle class there grows, and markets in Eastern and Central Europe, the CEO said.

Davis said he is confident UPS can keep its base rates up and improve margins. Yield, or revenue per package, rose in the mid-single-digit range in the first quarter.

"We do believe global trade is going to grow, and we are positioned" for that trend, said Davis, a member of the President's Export Council. "Small and medium-sized companies have got to start exporting." (Reuters)