U.S. GDP Growth Is Revised Up With Trade and Inventories

U.S. economic growth of 2.5% last quarter (AR, 1.6% y/y) was more robust than last month's estimated gain of 1.7%. The figure also slightly outpaced the expected 2.3% gain in the Action Economics Forecast Survey. The foreign trade and inventory effects were revised up but domestic final demand growth was weakened slightly, mostly due to less government spending.

Reported for the first time, before tax profits grew 3.9% (5.0% y/y), the largest advance since Q4'11. Domestic nonfinancial sector earnings grew 4.2% (5.4% y/y), earnings from abroad advanced 3.4% (-4.0% y/y) and financial sector profitability gained 3.3% (13.7% y/y). After tax corporate profits advanced 2.6% (5.8% y/y).

The net export effect on GDP growth was revised up to neutral versus the initial estimate of a 0.8 percentage point subtraction. Exports grew at an 8.6% rate (2.1% y/y), revised from 5.4%, but imports rose at a 7.0% rate (1.2% y/y), not 9.5% as estimated initially. The contribution to growth from inventory accumulation also was raised slightly to 0.6 percentage points from 0.4 points. Offsetting these revisions was a reduced estimate of growth in final sales to domestic purchasers to 1.9% (1.5% y/y) from 2.0%. Nevertheless that was its fastest advance since Q3'12.

A larger decline in government purchases of 0.9% (-2.1% y/y) had the greatest effect on the lessened domestic final demand growth. Federal government spending fell 1.6% (-4.1% y/y) while state & local spending declined 0.5% (-0.7% y/y). Growth in capital spending also was eased to 4.4% (2.3% y/y) and the advance in residential was lessened to 12.9% (14.8% y/y). Growth in personal consumption remained at 1.8% (1.8% y/y), held back by fewer new vehicle purchases.

Estimates of price inflation were little-changed. The GDP chain price index grew at a 0.8% rate last quarter (1.4% y/y), its weakest rise since Q4'11. The PCE price deflator remained unchanged (1.1% y/y), held back by the decline in energy prices. The price index for business fixed investment rose 1.2% (1.1% y/y) but the residential investment price index grew a firm 5.1% (4.7% y/y).

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 on the national accounts, including the new integrated economics accounts and the recently added GDP data for U.S. Territories. The Action Economics consensus estimates can be found in AS1REPNA.