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Economy in Brief

U.S. GDP Growth Is Revised Slightly Higher; Corporate Profits Firm
by Tom Moeller  May 27, 2016

Real economic growth last quarter was somewhat firmer than first indicated. GDP grew 0.8% (SAAR, 2.0% y/y) after an initially reported 0.5% gain. Nevertheless, it remained the weakest quarterly rise in a year. A lessened drag on growth from inventory decumulation prompted most of the upward revision to growth. Nevertheless, the moderation in real economic growth during Q1 remained primarily due to weaker consumer spending and a decline in business investment. GDP's increase compared to expectations for a 0.9% rise in the Action Economics Forecast Survey. The GDP price index increased at a slightly reduced 0.6% rate (1.2% y/y), its slowest rise in a year.

Reported for the first time, after tax corporate profits increased 1.9% without both inventory and depreciation allowances. Nevertheless, profits remained 3.6% lower than one year earlier due to declines in Q4 and Q3. Profits before tax without IVA & CCA increased 0.3% (-5.7% y/y). U.S. nonfinancial industry earnings increased 4.0% (-5.6% y/y), but financial industry profits eased 0.5% (+2.9% y/y). Profits earned abroad declined 9.9% (-14.0% y/y).

Inventory decumulation subtracted a lessened 0.2 percentage points from GDP growth, the third consecutive subtraction. Deterioration in the foreign trade accounts subtracted 0.2% percentage points from overall economic growth. That was reduced slightly from the advance report. Exports declined 2.0% (+0.4% y/y), the same as in Q4. Goods exports fell 2.6% (-0.7% y/y) while services exports eased 0.9% (+2.5% y/y). Imports edged 0.2% lower (+1.1% y/y). Goods imports fell 1.2% (+0.5% y/y), but services imports rose 3.8% (3.5% y/y) with more U.S. citizens traveling abroad.

Consumer spending growth of 1.9% last quarter was unrevised, and its weakest since Q1'15. Growth was held back by an 11.5% decline (-1.5% y/y) in motor vehicle & parts purchases as well as a 0.9% drop (+1.7% y/y) in apparel buying. To the upside was spending on recreational goods & vehicles, which rose 9.4% (10.3% y/y). Spending on home furnishings & appliances increased 3.8% (5.6% y/y) and gasoline buying rose 6.3% (2.1 % y/y). In the services area, spending growth remained fairly steady at 2.6% (2.5% y/y). It reflected a roughly constant 6.1% advance (6.0% y/y) in transportation, but a 1.9% increase (3.8% y/y) in restaurant & accommodations. This gain was down from 7.2% growth in Q2'15. Spending on housing & utilities grew 2.0% (0.1% y/y).

Business spending declined at a little-changed 6.2% rate, its second consecutive fall, held back by declining corporate profitability. Investment in structures fell 8.9% (-3.9% y/y). Equipment investment declined 9.0% (-0.4% y/y) while intellectual property product buying was little changed (+1.8% y/y). Continuing firm was residential investment which grew a strengthened 17.2% (11.1% y/y).

Spending by governments grew at an unchanged 1.2% rate. Federal spending declined 1.6% (+0.2% y/y), held back by a 3.6% decline (-0.5% y/y) in defense buying. State & local government purchases grew at an accelerated 2.9% rate (2.2% y/y).

Pricing behavior was constrained by economic weakness. The GDP price index growth of 0.6% was less than initially indicated and reflected a stable 0.3% rise (1.0% y/y) in the personal spending price index. Nondurable goods prices fell 5.6% (-1.2% y/y) with the decline in gasoline prices. Durable goods prices fell 1.1% (-1.3% y/y), but services prices rose an improved 2.5% (2.1% y/y). The nonresidential investment price index increased 0.2% both q/q and y/y. Residential investment prices gained 1.8% (1.4% y/y) while government sector prices were little changed (0.6% y/y).

The GDP figures can be found in Haver's USECON and USNA database. USNA contains virtually all of the Bureau of Economic Analysis' detail in the national accounts, including the integrated economic accounts and the recently added GDP data for U.S. Territories. The Action Economics consensus estimates can be found in AS1REPNA.

Recent Economic Developments, the Productive Potential of the Economy, and Monetary Policy is the title of yesterday's speech by Federal Reserve Governor Jerome H. Powell and it can be found here.

Chained 2009 $ (%, AR) Q1'16 (Second Estimate) Q1'16 (Advance Estimate) Q4'15 Q3'15 Q1'16 Y/Y 2015 2014 2013
Gross Domestic Product 0.8 0.5 1.4 2.0 2.0 2.4 2.4 1.5
  Inventory Effect -0.2 -0.4 -0.2 -0.7 -0.3 0.2 0.0 0.1
Final Sales 1.0 0.9 1.6 2.7 2.3 2.3 2.4 1.4
  Foreign Trade Effect -0.2 -0.3 -0.1 -0.3 -0.1 -0.6 -0.1 0.2
Domestic Final Sales 1.2 1.2 1.7 2.9 2.4 2.8 2.8 1.2
Demand Components
Personal Consumption Expenditures 1.9 1.9 2.4 3.0 2.7 3.1 2.7 1.7
Business Fixed Investment -6.2 -5.9 -2.1 2.6 -0.5 2.9 6.2 3.0
Residential Investment 17.2 14.9 10.1 8.2 11.1 8.9 1.8 9.5
Government Spending 1.2 1.2 0.1 1.8 1.4 0.7 -0.6 -2.9
Chain-Type Price Index
GDP      0.6 0.7 0.9 1.3 1.2 1.0 1.6 1.6
Personal Consumption Expenditures 0.3 0.3 0.3 1.3 1.0 0.3 1.4 1.4
 Less Food/Energy 2.1 2.1 1.3 1.4 1.7 1.3 1.5 1.5
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