U.S. GDP Growth in First Quarter Revised Up to 1.1% Rate
28 June 2016 - 11:00PM
Dow Jones News
By Josh Mitchell and Ben Leubsdorf
WASHINGTON--The U.S. economy expanded more than previously
thought in the first three months of the year, but the subdued pace
overall suggests it remains vulnerable to a new round of global
economic turmoil.
Gross domestic product, the broadest measure of goods and
services produced across the U.S., grew at a seasonally adjusted
annual rate of 1.1% in the first quarter, the weakest pace in a
year, the Commerce Department said Tuesday. The agency previously
estimated the economy grew at a 0.8% pace.
Economists surveyed by The Wall Street Journal had expected the
latest estimate to show 1% growth.
The main factors behind the upward revision: The U.S. exported
more good and services than previously thought during the period.
And companies spent more than initially estimated on software and
research and development.
But total business investment still declined compared with the
prior quarter, falling at the fastest pace since the third quarter
of 2009. And spending by everyday Americans--the lifeblood of the
world's largest economy--was weaker than previously thought.
Consumer spending in the first quarter grew at the slowest pace in
two years, the fresher data showed.
The report--the agency's third estimate for growth in the first
quarter---highlighted troubling developments that are keeping the
economy from achieving the robust growth that lifted the middle
class in the late 1980s and throughout the 1990s. Depressed oil
prices--while helping consumers save at the pump--are sapping
business investment as energy firms scale back drilling projects.
Coal producers are similarly cutting payrolls and projects. Export
growth has stalled due to broad weakness in foreign markets,
hurting American factories.
The economy has made a habit of stumbling in the early months of
the year only to rebound in the spring and summer, and this year
appears no different. Recent economic reports suggest gross
domestic product grew at a rate of between 2.5% and 3% in the
three-month period that ends Thursday.
Economists believe growth in consumer spending and strong sales
of cars and homes will allow the U.S. to continue to expand despite
the fallout of the U.K.'s vote last week to leave the European
Union.
"The available indicators point to a noticeable step-up in GDP
growth in the second quarter," Federal Reserve Chairwoman Janet
Yellen testified before Congress last week. "In particular,
consumer spending has picked up smartly in recent months, supported
by solid growth in real disposable income and the ongoing effects
of the increases in household wealth. And housing has continued to
recover gradually, aided by income gains and the very low level of
mortgage rates."
The Fed is debating whether to raise short-term interest rates
this year. The central bank indicated earlier this year that it
could move this summer, but the likelihood of an increase that soon
has diminished due to fears that the U.K. move, known as Brexit,
and slower job growth in the U.S. could weigh on the overall
economy.
The weak household spending in the first quarter represents a
new red flag. Economists have expected consumer
spending--representing more than two-thirds of demand in the
economy--to be stronger due to a slight pickup in wages and cheap
gasoline.
Tuesday's report showed consumer spending grew at a 1.5% annual
pace in the first quarter, replacing the prior estimate of 1.9%,
including a downward revision to spending on services like
transportation and recreation.
Meanwhile, a key measure of business spending on equipment,
buildings and software fell for the second straight quarter.
Nonresidential fixed investment declined at a 4.5% rate, instead of
the previously reported 6.2% drop.
Exports rose 0.3%, instead of falling 2% as previously
reported.
Corporate profits--as measured after tax and without inventory
valuation and capital consumption adjustments--grew 3.3%, up from
the initially reported gain of 1.9%.
The economy grew 2.1% in the first quarter compared to the same
period a year earlier. The current expansion is among the longest
in modern U.S history, but growth has also been weak compared to
other growth periods. The economy expanded 2.4% in both 2014 and
2015. Many forecasters predict growth will be slightly weaker this
year, at about 2%.
The Commerce Department's GDP report can be accessed at:
http://bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
Write to Josh Mitchell at joshua.mitchell@wsj.com and Ben
Leubsdorf at ben.leubsdorf@wsj.com.
(END) Dow Jones Newswires
June 28, 2016 08:45 ET (12:45 GMT)
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