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US Q1 growth revised down to 3.1%

Short-term boost from exports, inventory accumulation is fading as production at factories slows


US ECONOMIC growth accelerated in the first quarter, the government confirmed on Thursday, but there are signs that the temporary boost from exports and inventory accumulation is already fading, with production at factories slowing.

Gross domestic product increased at a 3.1 per cent annualised rate, the government said in its second reading of first-quarter GDP. That was slightly down from the 3.2 per cent pace estimated last month.

The economy grew at a 2.2 per cent pace in the October-December period. While the government trimmed its initial estimate for inventory investment, export growth was raised. These two volatile components were the key drivers of the rise in GDP in the first quarter.

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There was a small upward revision to consumer spending growth. Business spending on equipment actually contracted in the last quarter, while the housing market was weaker than initially thought.

Economists polled by Reuters had expected GDP growth for the first three months of the year would be trimmed to a 3.1 per cent rate.

Excluding trade, inventories and government spending, the economy grew at a 1.3 per cent rate as reported last month. That was the slowest since the second quarter of 2013.

The economy will mark 10 years of expansion in July, the longest on record.

Growth is, however, slowing. Industrial production and orders for long-lasting manufactured goods declined in April as businesses placed fewer orders at factories while working off the inventory overhang. Retail sales were also weak last month and the housing market continues to struggle.

The moderation in growth largely reflects the fading stimulus from the Trump administration's hefty tax cuts and spending increases last year. A trade war between the United States and China is also seen hurting the economy.

The Atlanta Federal Reserve is forecasting GDP rising at a 1.3 per cent pace in the second quarter.

The government also reported on Thursday after tax profits without inventory valuation and capital consumption adjustment, which correspond to S&P 500 profits, fell at a 0.8 per cent rate or US$15.9 billion in the first quarter after falling at a 1.7 per cent pace or US$34.2 billion in the fourth quarter.

An alternative measure of economic growth, gross domestic income (GDI), increased at a rate of 1.4 per cent in the first quarter, compared to fourth quarter's 0.5 per cent.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 2.2 per cent rate in the January-March period, up from a 1.3 per cent growth pace in the fourth quarter.

Export growth in the first quarter was revised up to a 4.8 per cent rate, outpacing an upgrade to imports. As a result, trade added 0.96 percentage point to GDP rather than the 1.03 percentage point estimated last month. Trade tensions have caused wild swings in the trade deficit, with exporters and importers trying to stay ahead of the tariff fight.

The standoff has also had an impact on inventories. Growth in inventories was revised down to a US$125.5 billion rate in the first quarter from the previously estimated US$128.4 billion pace.

Part of the inventory build was because of weak demand, especially in the automotive sector, which is weighing on production at factories. Inventories contributed 0.60 percentage point to first-quarter GDP, rather than the 0.65 percentage point reported last month.

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, was revised up to a 1.3 per cent rate. Consumer spending was previously reported to have increased at a 1.2 per cent pace in the first quarter.

Business spending on equipment dropped at a 1.0 per cent pace instead of rising at a 0.2 per cent rate. That was the weakest since the first quarter of 2016. Government investment increased at a 2.5 per cent rate. It was previously reported to have risen at a 2.4 per cent rate. REUTERS