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US first-quarter GDP growth revised up to 1.1%

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US economic growth slowed in the first quarter but not as sharply as previously estimated, with gains in exports and investment in software partially offsetting weak consumer spending.

[WASHINGTON] US economic growth slowed in the first quarter but not as sharply as previously estimated, with gains in exports and investment in software partially offsetting weak consumer spending.

Gross domestic product increased at a 1.1 per cent annual rate, rather than the 0.8 per cent pace reported last month, the Commerce Department said on Tuesday in its third GDP estimate.

First-quarter GDP growth has now be revised higher by six-tenths of a point since the advance estimate was published in April. The economy grew at a rate of 1.4 per cent in the fourth quarter. Economists polled by Reuters had expected first-quarter GDP growth would be revised up to a 1.0 per cent rate.

There are signs the economy has regained momentum in the second quarter, with retail sales and home sales rising in both April and May, even though business spending continues to struggle and job growth has slowed.

Federal Reserve Chair Janet Yellen told lawmakers last week that data pointed to "a noticeable step-up" in GDP growth in the second quarter. The Atlanta Federal Reserve is currently estimating second-quarter GDP rising at a 2.6 per cent rate.

When measured from the income side, the economy grew at a 2.9 per cent rate in first quarter and not the previously reported 2.2 per cent pace, reflecting upward revisions to corporate profits.

Economic growth in the first quarter was constrained by a strong dollar and sluggish global demand, which crimped exports. Output was also hampered by businesses' efforts to reduce an inventory overhang, with a further drag coming from lower oil prices, which have sparked deep spending cuts on equipment.

Economists also believe the model used by the government to strip out seasonal patterns from data is not fully accomplishing its goal. The economy has underperformed in the first quarter in five of the last six years.

The government said early this month its review found inconsistencies in the manner in which monthly source data are utilized in the compilation of quarterly GDP estimates.

It said the review had also uncovered issues related to revision policies and practices "that prevented the most recent seasonal adjustments from being applied to historical time series." The government said beginning in mid-2018, it planned to produce estimates of GDP and its major components that are not seasonally adjusted. These will be released together with the seasonally adjusted GDP estimates.

In the first quarter, business spending on software, research and development was revised to show it rising at a 4.4 per cent rate instead of falling at a 0.1 per cent rate. Business spending on equipment fell at an 8.7 per cent pace as opposed to the 9.0 per cent rate reported last month.

Overall, business spending sliced off 0.58 percentage point from first-quarter GDP instead of the previously reported 0.81 percentage point.

Export growth was revised to show a 0.3 per cent rate of increase instead of the previously report 2.0 per cent pace of contraction. With imports subdued, that resulted in a smaller trade deficit, which added 0.12 percentage point to GDP growth.

Trade was previously reported to have subtracted 0.21 percentage point from GDP growth.

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, was revised down to a 1.5 per cent rate from a 1.9 per cent. The downward revision reflected weak spending on services such as transportation and recreation.

But with household incomes and savings rising, there is room for consumer spending to accelerate. Savings were revised up to US$796.7 billion from US$782.6 billion.

There was a minor revision to inventory investment. Businesses accumulated US$68.3 billion worth of inventory, instead of the US$69.6 billion estimated last month.

After-tax corporate profits increased at a 2.2 per cent rate in the first quarter, rather than the previously reported 0.6 per cent pace. Profits tumbled at an 8.4 per cent pace in the fourth quarter, when they were held down in part by a US$20.8 billion transfer payment related to the BP oil spill in the Gulf of Mexico in 2010.