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Economy in Brief

U.S. GDP Growth Is Lessened and Corporate Profits Decline
by Tom Moeller  May 30, 2019

Gross domestic product, adjusted for price inflation, increased 3.1% during Q1'19, revised from 3.2%. Despite the revision, the 3.2% rate of growth during the last four quarters remained the strongest increase since Q2'15. The rise compared to expectations for a 3.0% increase in the Action Economics Forecast Survey. Inventory and fixed investment estimates were reduced.

After-tax corporate profits with inventory and capital consumption adjustments declined $72.8 billion (+1.9% y/y), the first decline since Q3'16. Before-tax profits with IVA & CCA fell $65.3 billion (+3.1% y/y). Domestic nonfinancial profits fell $62.0 billion (+7.0% y/y), the first decline since Q3'17. Profits earned abroad were off $10.8 billion (-2.5% y/y), the first decline since Q2'17, but earnings in the domestic financial sector gained $7.5 billion (-1.7% y/y).

The contribution to growth in real GDP from inventory investment was lessened to 0.6 percentage points from 0.7 following a 0.1 percentage point addition in Q4'18. Improvement in the foreign trade deficit added an unrevised 1.0 percentage points to growth following two quarters of subtraction. Export growth of 4.8% (2.6% y/y) was the largest gain since Q2'18. Imports fell a lessened 2.5% (+2.0% y/y).

Growth in final sales to domestic purchasers fell to 1.5% (2.6% y/y), revised from 1.4% and remained the weakest rate of growth since Q4'15. Consumer spending rose 1.3% (2.8% y/y), the weakest rise in a year. A 4.6% decline (+2.7% y/y) in durable goods demand was led by a 15.9% decline (-1.2% y/y) in motor vehicle & parts sales. Demand for home furnishings & household equipment fell 2.1% (+1.3% y/y), off for the second straight quarter. These declines were offset by an increase in sales of recreational goods & vehicles of 6.9%, both q/q and y/y. Nondurable product sales increased 2.0% (3.1% y/y). The rise centered in the "other" category, as apparel & shoes demand fell 4.9% (+3.9% y/y). Food & restaurant sales declined 1.6% (+1.3% y/y) and demand for gasoline & oil held steady (1.0% y/y). Demand for services increased 2.1% (2.7% y/y) as transportation sales surged 4.2% (0.9% y/y) and demand for financial services & insurance strengthened 3.5% (2.0% y/y). Health care services demand rose a strong 4.7% (2.9% y/y) and housing & utilities purchases rose 1.3% (1.6% y/y). Offsetting these increases was a  1.6% decline (+0.6% y/y) in the demand for recreation services, the second decline in three quarters.

Business fixed investment grew a little-changed 2.3% (4.7% y/y) after a 5.4% strengthening in Q4'18. Investment in structures increased 1.7% (2.0% y/y) after two quarters of decline. Equipment demand fell a weakened 1.0% (+3.3% y/y) as an 8.1% decline (+2.4% y/y) in "other" equipment offset a 6.2% rise in transportation equipment purchases. Investment in intellectual property products surged 7.2% (8.5% y/y). Industrial equipment sales declined 2.9% (+2.1% y/y) and demand for information processing equipment was little changed (3.5% y/y).

Holding back the gain in overall demand was a 3.5% decline (-3.3% y/y) in residential investment, which has been declining since its peak in Q4'17.

Government expenditures grew at an improved 2.5% rate (1.8% y/y). State & local government spending growth of 4.0% (1.6% y/y) was accompanied by a 0.1% easing (+2.0% y/y) in federal government expenditures. A 4.0% jump (5.3% y/y) in defense spending offset a 5.9% decline (-2.5% y/y) in nondefense outlays.

The GDP chain price index increased 0.8% (1.8% y/y), the weakest rise in three years. It compared to a 0.9% expected gain. The PCE chain price index increase of 0.4% (1.4% y/y) was underpinned by a 1.0% rise (1.6% y/y) in the index excluding food & energy. The business fixed investment price index rose 1.5% (1.5% y/y) and the residential price index gained 2.5% (4.0% y/y. The government spending price index increased 1.1% (2.3% y/y).

The GDP figures can be found in Haver's USECON and USNA database. USNA contains virtually all of the Bureau of Economic Analysis' detail in the national accounts. Both databases include tables of the newly published not seasonally adjusted data. The Action Economics consensus estimates can be found in AS1REPNA.

Is There Too Much Business Debt? from the Federal Reserve Bank of New York can be found here.

Chained 2012 $ (%, AR) Q1'19 (Second Estimate) Q1'19 (Advance Estimate) Q4'18 Q3'18 Q1'19 Y/Y 2018 2017 2016
Gross Domestic Product 3.1 3.2 2.2 3.4 3.2 2.9 2.2 1.6
  Inventory Effect (%-point) 0.6 0.7 0.1 2.3 0.5 0.1 0.0 -0.5
Final Sales 2.5 2.5 2.1 1.0 2.7 2.7 2.2 2.1
  Foreign Trade Effect (%-point) 1.0 1.0 -0.1 -2.0 0.1 -0.2 -0.3 -0.3
Domestic Final Sales  1.5 1.4 2.1 2.9 2.6 2.9 2.5 2.3
   
  Personal Consumption Expenditure 1.3 1.2 2.5 3.5 2.8 2.6 2.5 2.7
  Nonresidential Fixed Investment 2.3 2.7 5.4 2.5 4.7 6.9 5.3 0.5
  Residential Investment -3.5 -2.8 -4.7 -3.5 -3.3 -0.3 3.3 6.5
  Government Spending 2.5 2.4 -0.4 2.6 1.8 1.5 -0.1 1.4
Chain-Type Price Index
   GDP 0.8 0.9 1.7 1.8 1.8 2.2 1.9 1.1
    Personal Consumption Expenditure 0.4 0.6 1.5 1.6 1.4 2.0 1.8 1.1
        Less Food & Energy 1.0 1.0 1.8 1.6 1.6 1.9 1.6 1.7
    Nonresidential Investment 1.5 1.3 1.1 1.6 1.5 1.2 0.7 -0.8
    Residential Investment 2.5 1.8 2.6 3.6 4.0 5.6 4.5 3.6
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