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Economy in Brief

1Q US GDP Growth Revised Up, Profits Soared
by Tom Moeller May 25, 2006

During 1Q06 the U.S. economy grew 5.3% (AR), faster than the initially estimated 4.8% which was an acceleration from 1.7% during 4Q05. The increase fell short of Consensus expectations for a revision to 5.8% and growth of 3.0-3.5% is widely forecast for 2Q.

Corporate profits jumped 7.9% (23.8% y/y) during 1Q. Strength was pronounced for US financial corporations whose profits soared 17.5% (19.4% y/y). Nonfinancial corporate profitability also posted a robust 4.6% (29.3% y/y) gain as profit margins rose to another record high. Overseas profits recovered 4.3% (12.4% y/y) following a 6.5% decline during 4Q.

Inventories subtracted a lesser 0.1% from GDP growth during 1Q versus the initial estimate of a 0.5% subtraction.

The 0.6 percentage point subtraction from a wider foreign trade deficit also was less than the initially estimated 0.8 percentage points. Growth in exports was revised up to 14.7% (8.1% y/y) and import growth of 12.8% (6.6% y/y) was little changed.

Domestic demand growth was lessened to 5.7% from 5.9% estimated initially due to lowered estimates of growth in personal consumption and business investment.

Growth in personal consumption expenditures was revised down to 5.2% (3.4% y/y) from 5.5%. The estimate of growth in spending on services was reduced to 2.2% (2.6% y/y) from 2.8% while estimates of strong spending in most goods categories were little changed.

Growth in business fixed investment also was reduced to a still strong 13.8% (10.0% y/y) from 17.9% estimated last month. Growth in spending on structures was halved to 11.4% (4.8% y/y). Residential investment grew 3.0% (5.9% y/y).

The estimate of the GDP chain price index was unchanged at 3.3%.

Chained 2000$, % AR 1Q '06 (Prelim.) 1Q '06 (Advance) 4Q '05 Y/Y 2005 2004 2003
GDP 5.3% 4.8% 1.7% 3.6% 3.5% 4.2% 2.7%
  Inventory Effect -0.1% -0.5% 1.9% -0.2% -0.3% 0.3% 0.0%
Final Sales 5.5% 5.4% -0.2% 3.8% 3.8% 3.9% 2.7%
  Foreign Trade Effect -0.6% -0.8% -1.4% 0.0% -0.1% -0.5% -0.3%
Domestic Final Demand 5.7% 5.9% 1.1% 3.8% 3.9% 4.4% 3.0%
Chained GDP Price Index 3.3% 3.3% 3.5% 3.2% 2.8% 2.6% 2.0%
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