U.S. GDP Growth Revised Up in Q1’23; Profits Decline

Real GDP grew 1.3% at an annual rate (1.6% y/y) during Q1'23 following a 2.6% Q4 rise. The figure was increased from the 1.1% gain reported in the advance report, but remained the weakest rise since negative growth during Q2’22. The latest figure compared to expectations for an unrevised 1.1% rise in the Action Economics Forecast Survey.

After-tax profits fell 2.1% (-6.0% y/y) after declining 5.9% in Q4’22. Before-tax profits fell 5.1% (-2.8% y/y) after falling 2.0% in Q4. Nonfinancial sector earnings weakened 5.3% (+1.9% y/y) after falling 1.1%. Financial sector profits weakened 6.3% (-25.9% y/y) after a 12.7% decline. Foreign sector earnings declined 3.5% (+3.4% y/y) after rising 4.8% in Q4.

A reduction of inventories subtracted 2.10 percentage points from growth last quarter, revised from a 2.26 percentage point subtraction. It followed a 1.47 percentage point addition in Q4. The change in the foreign trade deficit had no effect on GDP growth versus a 0.11 percentage point addition estimated last month. These figures are below the 0.42 percentage point addition to growth in Q4. Exports rose 5.2% (7.2% y/y), revised from 4.8% after falling 3.7% in Q4. Imports rose 4.0% (-1.8% y/y), revised from 2.9%, following declines during the prior two quarters.

Growth in final sales to domestic purchasers strengthened to 3.3% (1.4% y/y), revised from 3.2%, following a 0.7% Q4 rise. Real personal consumption expenditures strengthened a negligibly changed 3.8% (2.3% y/y), following 1.0% growth in Q4. Durable goods outlays surged a little-revised 16.4% (2.6% y/y). Spending on motor vehicles & parts strengthened 44.3% (4.2% y/y), revised from 45.3%, and furniture & appliance outlays rose a little-changed 2.2% (0.9% y/y). Recreational goods & vehicle buying improved 6.3% (3.4% y/y), revised from 6.7%, and followed a 3.1% decline. In the nondurable goods sector, spending rose an unrevised 0.9% (-0.3% y/y). Outlays on food & beverages eased a little-changed 0.9% (-3.5% y/y) following declines in three of the prior four quarters. Clothing outlays fell 1.9% (+2.1% y/y), while gasoline & oil expenditures rose 3.0% (-0.2% y/y, revised from -2.6%. Purchases of services improved 2.5% (3.1% y/y), revised from 2.3% after a 1.6% rise. Housing & utilities outlays weakened a little-changed 0.8% (+0.5% y/y) and health care outlays increased 7.7% (5.1% y/y), revised from 5.7%. Spending on recreation increased 2.8% (5.0% y/y), revised from 5.9% while spending at restaurants & hotels rose a little-changed 4.6% (6.9% y/y).

Business fixed investment rose 1.4% (2.9% y/y) in Q1’23, revised from 0.7%, after strengthening 4.0% in Q4. Structures investment rose a little-changed 11.0% (2.0% y/y) but had been falling since 2019. Equipment investment eased negligibly (+6.4% y/y), revised from -7.3%, reflecting an upwardly revised 2.4% increase (-4.8% y/y) in information processing equipment and a 9.6% gain, revised from -0.9%, in industrial equipment outlays (3.5% y/y). Transportation equipment investment plummeted 18.3% (+22.7% y/y) while investment in intellectual property products rose 11.7% (10.2% y/y), revised from 3.8%, remaining strong since the end of the 2020 recession.

Residential investment declined for the eighth consecutive quarter, weakening 6.7% (-14.0% y/y) in Q1 revised from -4.2%.

Government spending increased 5.2% (2.7% y/y), revised from 4.7%, the third consecutive quarter of firm growth. Federal government spending surged a little-changed 7.5% (3.3% y/y) as defense spending rose 5.7% (3.5% y/y). Nondefense outlays surged 10.1% (3.1% y/y) following a similar increase in Q4. State & local government spending rose an upwardly-revised 3.8% (2.4% y/y), about as it has for three straight quarters.

The GDP chain price index increased 4.2% last quarter (5.3% y/y), revised from 4.0%, still roughly the weakest increase since the end of 2020. It was down from a high of 9.0% in Q2’22. The Action Economics Forecast Survey expected a 4.0% increase. The PCE chain price index rose an unchanged 4.2% (4.9% y/y), after increasing 3.7% in Q4. The PCE price index less food & energy gained 5.0% (4.7% y/y). The nonresidential investment price index rose 6.9% (6.6% y/y). The structures price index increased 7.1% (13.0% y/y) and the equipment price index improved 7.5% (7.2% y/y). The intellectual property products price index improved 6.1% (3.2% y/y). The residential investment price index declined 1.4% (+6.6% y/y) compared to its peak 18.9% rise in Q1’22. The government spending price index rose 1.9% (5.1% y/y). Each of these figures were close to earlier estimates.

The GDP figures can be found in Haver's USECON and USNA databases. USNA contains virtually all of the Bureau of Economic Analysis' detail in the national accounts. Both databases include tables of the newly published not seasonally adjusted data. The Action Economics consensus estimates can be found in AS1REPNA.

The minutes to the latest FOMC meeting can be found here.