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Economy in Brief

U.S. GDP Growth and Corporate Profits Revised Higher
by Tom Moeller  June 28, 2016

Economic growth during the first quarter was revised up slightly. GDP grew 1.1% (SAAR, 2.1% y/y) following a 0.8% rise estimated last month, and 0.5% in the advance estimate. Despite the revisions, growth last quarter was the weakest in a year. Slight improvement in the foreign trade deficit fueled 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 matched expectations in the Action Economics Forecast Survey. The GDP price index increased at a slightly reduced 0.4% rate (1.2% y/y). It was the weakest gain in four quarters and compared to expectations for a 0.8% rise.

After-tax corporate profits increased 3.3%, revised from 1.9%, without both inventory and depreciation allowances. Nevertheless, profits remained 2.3% lower than one year earlier due to declines in Q4 and Q3. Profits before tax without IVA & CCA increased 1.8% (-4.3% y/y). U.S. nonfinancial industry earnings increased 6.4% (-3.5% y/y), but financial industry profits declined 3.0% (+0.3% y/y). Profits earned abroad fell 7.2% (-11.4% y/y).

Improvement in the foreign trade account added 0.1 percentage point to overall economic growth versus 0.2 points subtracted in the last report. Exports increased 0.3% (1.0% y/y), revised from a 2.0% drop. Goods exports gained 1.1% (0.2% y/y), revised from a 2.6% decline, while services exports eased a little-revised 1.1% (+2.5% y/y). Imports edged 0.5% lower (+1.0% y/y), about as estimated last month. Goods imports fell 1.3% (+0.5% y/y), but services imports rose 3.1% (3.3% y/y) with more U.S. citizens traveling abroad. Inventory decumulation subtracted 0.2 percentage points from GDP growth, as previously estimated. It was the third consecutive subtraction.

Growth in domestic final sales of 1.2% (2.4% y/y) was unrevised. It remained the weakest advance since Q2 2013.

Business spending declined at a 4.5% rate, revised from -6.2%, its second consecutive fall. Investment in structures fell 7.9% (-3.6% y/y). Equipment investment declined 8.7% (-0.3% y/y) while intellectual property product buying increased a strengthened 4.4% (2.9% y/y). Continuing firm was residential investment which grew a lessened 15.6% (10.8% y/y).

Consumer spending growth of 1.5% last quarter was reduced from 1.9%, and was its weakest rise in two years. Growth was held back by a 12.3% decline (-1.7% y/y) in motor vehicle & parts purchases as well as a 1.1% drop (+1.7% y/y) in apparel buying. To the upside was spending on recreational goods & vehicles, which rose 9.6% (10.3% y/y). Spending on home furnishings & appliances increased 3.6% (5.6% y/y) and gasoline buying rose 6.0% (2.0% y/y). In the services area, spending growth was revised lower to 2.1% (2.4% y/y). It reflected a 0.2% dip (+4.4% y/y) in transportation and a 2.2% increase (3.9% y/y) in restaurant & accommodations. This gain was down from 7.2% growth in Q2'15. Spending on housing & utilities grew 1.6% (0.0% y/y).

Spending by governments rose at a little-changed 1.3% rate. Federal spending declined 1.6% (+0.2% y/y), held back by a 3.8% decline (-0.5% y/y) in defense buying. State & local government purchases grew at an accelerated 3.2% rate (2.2% y/y).

Pricing behavior was constrained by economic weakness. GDP price index growth of 0.4% was less than initially indicated, and reflected an easier 0.2% 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 were off 1.0% (-1.3% y/y), but services prices rose an improved 2.3% (2.1% y/y). The nonresidential investment price index increased 0.2% both q/q and y/y. Residential investment prices gained 2.0% (1.5% y/y) while government sector prices eased 0.1% (+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.

Chained 2009 $ (%, AR) Q1'16 (Third Estimate) Q1'16 (Second Estimate) Q1'16 (Advance Estimate) Q4'15 Q3'15 Q1'16 Y/Y 2015 2014 2013
Gross Domestic Product 1.1 0.8 0.5 1.4 2.0 2.1 2.4 2.4 1.5
  Inventory Effect -0.2 -0.2 -0.4 -0.2 -0.7 -0.3 0.2 0.0 0.1
Final Sales 1.3 1.0 0.9 1.6 2.7 2.4 2.3 2.4 1.4
  Foreign Trade Effect 0.1 -0.2 -0.3 -0.1 -0.3 0.0 -0.6 -0.1 0.2
Domestic Final Sales 1.2 1.2 1.2 1.7 2.9 2.4 2.8 2.8 1.2
Demand Components
Personal Consumption Expenditures 1.5 1.9 1.9 2.4 3.0 2.6 3.1 2.7 1.7
Business Fixed Investment -4.5 -6.2 -5.9 -2.1 2.6 -0.0 2.9 6.2 3.0
Residential Investment 15.6 17.2 14.9 10.1 8.2 10.8 8.9 1.8 9.5
Government Spending  1.3 1.2 1.2 0.1 1.8 1.5 0.7 -0.6 -2.9
Chain-Type Price Index
GDP      0.4 0.6 0.7 0.9 1.3 1.2 1.0 1.6 1.6
Personal Consumption Expenditures 0.2 0.3 0.3 0.3 1.3 1.0 0.3 1.4 1.4
 Less Food/Energy 2.0 2.1 2.1 1.3 1.4 1.6 1.3 1.5 1.5
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