US first-quarter growth revised down to 2.2 per cent

[WASHINGTON] US economic growth slowed slightly more than initially thought in the first quarter amid downward revisions to inventory investment and consumer spending, but income tax cuts are likely to boost activity this year.

Gross domestic product increased at a 2.2 per cent annual rate, the Commerce Department said in its second estimate of first-quarter GDP on Wednesday, instead of the previously reported 2.3 per cent pace. The economy grew at a 2.9 per cent rate in the fourth quarter.

There are signs GDP growth gathered momentum early in the second quarter, with solid consumer spending, business investment on equipment and industrial production in April. But the housing market appears to have taken a further step back

Economists expect a US$1.5 trillion income tax cut package, which came into effect in January, will spur faster economic growth this year and lift annual GDP growth close to the Trump administration's 3 per cent target.

Economists had expected first-quarter GDP growth would be unrevised at a 2.3 per cent pace. The government also reported that after-tax corporate profits surged at a 5.9 per cent rate last quarter after increasing at a 1.7 per cent pace in the fourth quarter.

That was the fastest pace of growth in profits since the first quarter of 2016 and reflected a boost from the reduction in the corporate tax rate to 21 per cent from 35 percent. According to the Commerce Department, taxes on corporate income decreased US$117.4 billion in the first quarter.

The tax code revamp also bolstered dividends received from the rest of the world. Wages and salaries increased US$119.5 billion in the first quarter, an upward revision of US$3.1 billion from earlier estimates.

As a result, gross domestic income (GDI) an alternate measure of economic growth increased at a 2.8 per cent rate in the January-March quarter. GDI rose at a 1.0 per cent pace in the fourth quarter.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 2.5 per cent rate in the first quarter. That followed a 2.0 per cent rate of growth in the prior period.

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, braked to a 1.0 per cent rate in the first quarter, rather than the previously reported 1.1 per cent pace. That was the slowest pace since the second quarter of 2013 and followed the fourth quarter's robust 4.0 per cent growth rate.

Inventories increased at a US$20.2 billion rate in the first quarter, rather than the US$33.1 billion pace estimated last month. Inventory investment contributed 0.13 percentage point to GDP growth instead of 0.43 percentage point.

The smaller inventory accumulation bodes well for GDP growth in the second quarter. The trade deficit in the first three months of the year was a bit bigger than initially thought. Trade was neutral to GDP growth. It was previously reported to have contributed 0.20 percentage point to output.

Business spending on equipment was revised up to a 5.5 per cent growth rate in the January-March quarter from the 4.7 per cent pace estimated last month. That was still a moderation in investment following double-digit growth in the second half of 2017.

Investment in homebuilding fell at a 2.0 per cent rate in the first quarter instead of being unchanged as reported last month.

REUTERS