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Economy in Brief

US GDP Growth Revised Up, Corporate Profit Growth Down
by Tom Moeller May 26, 2005

US real GDP growth last quarter was revised up to 3.5% (AR) due to a halving of the subtraction from deterioration in the foreign trade deficit. Consensus expectations had been for a 3.7% advance.

Growth in corporate profits (w/IVA & CCA) slowed to 4.5% (13.8% y/y) from 13.5% in 4Q04. The slowdown was due to a 0.8% (+17.6% y/y) decline in US nonfinancial corporate earnings. Growth in financial sector earnings also slowed by two thirds to 11.6% (13.9% y/y) while earnings from abroad rose 11.2% (2.2% y/y), the strongest gain since late 2003.

Profit margins fell for the first quarter in two years though they remained higher than during all of last year.

The drag on US output growth from a larger foreign trade deficit was reduced to 0.7 percentage points as growth in real imports was lowered to 9.1% (9.4% y/y) from 14.7%. Export growth was bumped up to 7.2% (5.9% y/y) from 7.0%.

The contribution to GDP growth from faster inventory accumulation was lowered to 0.8 percentage points. Nevertheless, the $25.9B rate of accumulation in the factory sector was the fastest since late 1999.

Domestic demand growth was left unrevised at 3.2%. Growth in business investment was lowered slightly to a weak 3.5% (10.8% y/y). That was offset by an upward revision to consumer spending to 3.6% (3.6% y/y) and residential building to 8.8% (7.4% y/y).

The chain price index was unrevised at 3.2%. The price index for domestic demand also was unrevised at 2.9%.

Chained 2000$, % AR 1Q '05 (Prelim.) 1Q '05 (Advance) 4Q '04 Y/Y 2004 2003 2002
GDP 3.5% 3.1% 3.8% 3.7% 4.4% 3.0% 1.9%
  Inventory Effect 0.8% 1.2% 0.5% 0.3% 0.4% -0.1% 0.4%
Final Sales 2.7% 1.9% 3.4% 3.4% 4.0% 3.1% 1.4%
  Foreign Trade Effect -0.7% -1.5% -1.4% -0.6% -0.4% -0.3% -0.7%
Domestic Final Demand 3.2% 3.2% 4.5% 4.0% 4.4% 3.4% 2.1%
Chained GDP Price Index 3.2% 3.3% 2.3% 2.5% 2.2% 1.8% 1.7%
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