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Portfolio > Economy & Markets > Fixed Income

U.S. Economy Grew Slightly More Than Estimated in Q1

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The U.S. economy expanded at a slightly faster pace in the first quarter than initially estimated, reflecting less damage from trade and inventories, Commerce Department data showed Friday.

Key Points

Gross domestic product increased at a 0.8% annualized rate in three months through March (0.9% forecast), compared with 0.5% initially estimated The revised figure was paced by a larger reading on inventories and a narrower widening of the trade gap Wages and salaries were revised up for the fourth quarter and the gain in gross domestic income exceeded GDP in the first three months of 2016, which will stoke debate that first-quarter growth figures have been underestimated

Big Picture

The figures do little to alter views of the third consecutive sluggish start to the year, and could portend a tougher slog in the second quarter as businesses work to pare down those bigger stockpiles. At the same time, household income gains were stronger than previously reported as the labor market strengthened, which will help support consumer spending, which accounts for almost 70% of the economy.

Economist Takeaways

“One of the most interesting developments is this upward revision to wages and salaries for the fourth quarter,” said Kevin Cummins, an economist at RBS Securities Inc. in Stamford, Connecticut.“It’s certainly not booming by any stretch, but we do expect above-trend growth for the next few quarters, led by the consumer and the health of the labor market.”

“It’s still a very poor start to the year, but there’s a lot of measurement issues still plaguing first-quarter GDP,” Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. “From past experience we get most of that back in the second quarter.”

“You’re still seeing weakness in business fixed investment, but the consumer’s still chugging along,” said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida.

The Details

Inventories grew at a $69.6 billion annualized rate from January through March, up from a prior estimate of $60.9 billion. The trade deficit cut GDP by 0.21 percentage point, revised down from 0.34 percentage point. Final sales to domestic purchasers, which strip out the volatile inventories and trade components, increased at a 1.2% rate, the same as previously reported. Consumption that makes up almost 70% of the economy grew at a 1.9% pace (2.1% forecast), the same as initially estimated.

Corporate profits advanced 0.3% in the first quarter, but were down 5.8% over the past year. Wages and salaries grew by a revised $125.5 billion in the fourth quarter, the biggest gain in almost two years and up from the $81.7 billion increase previously reported. Gross domestic income, which combines all forms of earnings, climbed at a 2.2% annualized rate in the first quarter, matching the most since the last three months of 2014.


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