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Economy in Brief

U.S. 1Q'08 GDP Revised Up Minimally, Profits Revised Down
by Tom Moeller June 26, 2008

U.S. real GDP growth during 1Q'08 was revised minimally higher and showed 1.0% growth after the 0.6% rise during 4Q '07. Still, together, the figures are the weakest since near the end of the recession year of 2001.

Corporate profits were revised down considerably to a 1.3% annual rate of decline (+1.0% y/y) after the initial estimate of a 1.3% (1.7% y/y) rise. That followed the decline at a 12.4% rate in 4Q and at a 4.9% rate in 3Q. Lower earnings in foreign sector earnings, which now are estimated to have declined at a 21.1% rate (+25.5% y/y), contrasted with the initial estimate of 5.1% growth.Earnings in the financial sector were revised up to a 14.4% (-8.5% y/y) rate of increase following sharp declines during the prior two quarters. U.S. nonfinancial sector earnings were minimally revised to a 1.8% (-2.6% y/y) rate of increase after two quarters of sharp decline.

In the GDP accounts, revisions to trade and inventories were minimal. An improved foreign trade deficit added an unrevised 0.8 percentage points to GDP growth as growth in exports was raised to 5.5% (9.5% y/y) but so too were imports which now are estimated to have declined at only a 0.7% rate (-0.1% y/y).

Inventory accumulation is now estimated to have added nothing to 1Q GDP growth, down from the last reading of a 0.2 point addition. That contrasted with a 1.8 point subtraction from growth during 4Q '07.

Growth in final sales to domestic purchasers was revised up to a minimal 0.1% increase after a 1.3% rise during 4Q. These figures are weakest readings since the earlier recession in 1991.

The decline in residential construction was still quite severe. Activity declined at a little revised 24.5% (-20.7% y/y) rate which was about equal to the drops in 4Q and 3Q. These are the quickest rates of decline since the recession in 1981 and the 1Q drop reduced overall real GDP growth by 1.2 percentage points.

Business fixed investment was revised up slightly to a 0.5% (+6.7% Y/Y) rate of increase. It still was the smallest rate of increase since early 2004. Investment in structures grew at a little revised 1.3% (13.7% y/y) rate while equipment investment rose at a 0.2% (+3.5% y/y) rate rather than declining slightly.

Growth in real personal consumption was little revised at a 1.1% (1.9% y/y) gain which was its weakest since the recession year of 2001. Spending on autos & light trucks fell at a 13.4% (-4.8% y/y) rate while spending on furniture & other household equipment rose at a still weak 1.0% (5.1% y/y) rate. Growth in real PCE added 0.8 percentage points to 1Q real GDP growth.

The GDP chain price index was revised up slightly to a 2.7% annual rate of growth which was its fastest gain in three quarters. The PCE price index rose at a 3.6% rate (3.4% y/y) which was down slightly from the 3.9% rise in 4Q. Less food & energy consumer prices rose at a 2.3% rate which was revised up slightly.

Chained 2000$, % AR 1Q '08 (Final) 1Q '08 (Preliminary) 1Q '08 (Advance) 4Q '07 3Q '07 1Q Y/Y 2007 2006 2005
GDP 1.0 0.9 0.6 0.6 4.9 2.5 2.2 2.9 3.1
  Inventory Effect 0.0 0.2 0.8 -1.8 0.9 0.1 -0.3 0.1 -0.2
Final Sales 0.9 0.7 -0.2 2.4 4.0 2.7 2.5 2.8 3.3
Foreign Trade Effect 0.8 0.8 0.2 1.0 1.4 1.0 0.7 -0.1 -0.2
Domestic Final Demand 0.1 -0.1 -0.4 1.3 2.5 1.4 1.8 2.7 3.3
Chained GDP Price Index 2.7 2.6 2.6 2.4 1.0 2.2 2.7 3.2 3.2
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