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Economy in Brief

U.S. GDP Contracts 0.7% but Corporate Profits Rebound
by Tom Moeller  May 29, 2015

Real GDP fell 0.7% (SAAR) last quarter, revised from a 0.2% gain estimated initially. The decline compared to expectations for a 0.9% fall in the Action Economics Forecast Survey. It was the third quarterly decline since the economic recovery began late in 2009. Each occurred in the first quarter of the year.

Corporate profits without IVA & CCA rebounded 3.1% (9.2% y/y) following a like decline in Q4'14. Profits after the inventory and capital consumption adjustments fell 5.9% (+3.7% y/y) reflecting a 7.7% shortfall (+7.5% y/y) in nonfinancial sector earnings. Profits earned abroad fell 6.0% (-11.5% y/y) while financial sector earnings slipped 0.6% (+8.2% y/y).

Greater deterioration in net exports contributed the most to the GDP downward revision. It sapped 1.9 percentage points from growth versus the initial estimate of a 1.3 point subtraction. Exports fell at a 7.6% rate (+2.9% y/y), compared to last month's estimate of a 7.2% fall. Reflecting recessions abroad, West Coast port shutdowns and the stronger dollar, the decline was the first in a year. Goods exports fell at a 13.9% rate (+2.0% y/y) but services exports gained 7.3% (4.6% y/y), due to an increased number of foreigners' visits. Imports increased 5.6% (6.5% y/y) versus the advance estimate of a 1.8% rise. Goods imports jumped a strengthened 5.1% (6.5% y/y) and services increased 7.6% (6.0% y/y).

Inventory investment added 0.3 percentage points to growth, revised down from the initial estimate of 0.7 points. The addition followed subtractions in four of the prior five quarters.

Government consumption & investment fell at a deepened 1.1% rate (+0.7% y/y). State & local spending fell 1.8% (+1.0% y/y) but federal spending managed a 0.1% (0.3% y/y) due to a 2.1% rise (0.0% y/y) in nondefense purchases.

Personal consumption expenditures continued to offset some of these downward pressures on growth with a 1.8% rise. It was, however, revised marginally from 1.9% and was the weakest gain in a year. Lower prices prompted a lessened 4.4% jump (2.7% y/y) in fuel consumption. That was accompanied by an easier 3.6% rise (10.4% y/y) in recreational goods & vehicles. A 5.1% increase (7.7% y/y), however, in furniture & household equipment was strengthened. Motor vehicles spending eased a deepened 3.9% (+7.2% y/y), its first decline in nearly two years. Services spending grew at a little-changed 2.5% rate (2.5% y/y). Health care spending ramped up 5.3% (5.4% y/y) but recreation gained only 0.2% (0.7% y/y).

Fixed business investment declined at a lessened 2.8% rate (+5.0% y/y), led by a 20.8% shortfall (-0.2% y/y) in spending on structures. This reflected a 48.6% drop (-6.6% y/y) in mining, shafts & wells. Equipment investment growth was revised up to 2.7% (6.3% y/y) as transportation equipment grew 15.8% (11.3% y/y) and intellectual property products rose 3.6% (7.0% y/y). Industrial equipment investment rose 0.7% (8.4% y/y) but information processing equipment declined 10.3% (+6.1% y/y).

Residential investment grew at a strengthened 4.9% rate (5.2% y/y), the firmest growth in three quarters.

Economic weakness helped the chain price index slip at an unchanged 0.1% annual rate (+0.9% y/y). Consumer prices declined 2.0% (+0.3% y/y), as gasoline prices declined at a 63.2% annual rate (-30.4% y/y). The price index excluding food & energy rose 0.8% (+1.3% y/y). Business fixed investment prices rose 0.2% (0.7% y/y) while residential investment prices fell 0.3% (+3.0% y/y), the first decline in three years.

The latest GDP figures can be found in Haver's USECON and USNA databases; USNA contains basically all of the Bureau of Economic Analysis' detail in the national accounts, including the integrated economic accounts and the recently added GDP data for U.S. Territories. The Action Economics consensus estimates can be found in AS1REPNA.

Chained 2009 $, %, AR Q1'15 (2nd Estimate) Q1'15 (Advance Estimate) Q4'14 Q3'14 Q1 Y/Y 2014 2013 2012
Gross Domestic Product -0.7 0.2 2.2 5.0 2.7 2.4 2.2 2.3
  Inventory Effect 0.3 0.7 -0.1 -0.0 0.4 0.1 0.0 0.1
Final Sales -1.1 -0.5 2.3 5.0 2.3 2.3 2.2 2.2
  Foreign Trade Effect -1.9 -1.3 -1.0 0.8 -0.6 -0.1 0.3 0.1
Domestic Final Sales 0.8 0.7 3.3 4.1 2.9 2.4 1.9 2.1
Demand Components
Personal Consumption Expenditures 1.8 1.9 4.4 3.2 3.0 2.5 2.4 1.8
Business Fixed Investment -2.8 -3.4 4.7 8.9 5.0 6.3 3.0 7.2
Residential Investment 4.9 1.3 3.8 3.3 5.2 1.6 11.9 13.5
Government Spending -1.1 -0.8 -1.9 4.4 0.7 -0.2 -2.0 -1.4
Chain-Type Price Index
GDP      -0.1 -0.1 0.1 1.4 0.9 1.5 1.5 1.8
Personal Consumption Expenditures -2.0 -2.0 -0.4 1.2 0.3 1.3 1.2 1.8
 Less Food/Energy 0.8 0.9 1.1 1.4 1.3 1.4 1.3 1.8
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