U.S. GDP Growth Revised Up to 1.2% Rate in First Quarter--Update

By Ben Leubsdorf Features Dow Jones Newswires

U.S. economic growth in early 2017 was modest but stronger than initially thought, and the pace is picking up in the current quarter.

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Gross domestic product, a broad measure of the goods and services produced in the U.S. economy, expanded at an inflation- and seasonally adjusted annual rate of 1.2% in the first quarter, t he Commerce Department said Friday.

The agency last month estimated GDP growth at a 0.7% annual rate during the first three months of the year.

U.S. growth has averaged 2.1% a year since the recession ended in mid-2009. Looking through quarterly fluctuations, 2017 appears on a similar trajectory, based on recent projections by private economists and Federal Reserve policy makers.

"The recovery continues to be perhaps uninspiring, but it's awfully durable," said Michael Gapen, chief U.S. economist at Barclays.

First-quarter growth has repeatedly disappointed in recent years before rebounding in the spring and summer. This year looks set to follow that pattern, which some economists attribute to seasonal-adjustment problems.

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Forecasting firm Macroeconomic Advisers on Friday predicted GDP would expand at a 3.3% pace in the second quarter.

President Donald Trump wants to boost sustained economic growth above 3% through a combination of tax cuts and other policy changes. But many economists say that will be difficult given sluggish growth in the size of the labor force and slow gains in worker productivity.

Friday's report also offered the government's first estimate of U.S. corporate profits during the first quarter. After-tax profits, without inventory valuation and capital consumption adjustments, fell 0.3% from the fourth quarter but were up 11.9% from a year earlier.

The profits pullback came after four consecutive quarterly gains. The Commerce Department said first-quarter profits were depressed by legal settlements involving Credit Suisse, Deutsche Bank and Volkswagen.

Revisions to economic-output data for the first quarter were largely upbeat, with stronger growth for spending by consumers and businesses and a less-dramatic pullback in spending by governments compared with initial estimates released last month.

Consumer spending, which accounts for the majority of U.S. economic output, rose at a 0.6% annual rate, up from an earlier estimate of 0.3% but down from fourth-quarter growth of 3.5%.

Federal Reserve officials have shrugged off weak first-quarter spending as a temporary setback based on signs of underlying health, such as continued hiring and elevated consumer sentiment.

AutoZone Inc. this week reported its U.S. same-store sales fell 0.8% from a year earlier in the three months ended May 6. But the Memphis, Tenn.-based auto-parts retailer said sales picked up in the spring after a weak start.

"As we exited the quarter, we felt our sales trends had normalized," Chief Executive Bill Rhodes told analysts.

Capital expenditures by U.S. businesses accelerated in the first quarter. A broad measure, fixed nonresidential investment, rose at an 11.4% annual rate, up from an earlier estimate of 9.4% and the fourth quarter's 0.9% growth rate. Business spending rose broadly, led by a dramatic 28.4% jump in spending on structures such as mine shafts and oil wells.

A major driver of the recent investment pickup has been a rebound in domestic energy production.

But the Commerce Department on Friday also reported an April pullback in orders for long-lasting factory goods, a possible sign of soft business spending on new equipment this spring.

Spending by federal, state and local governments contracted less than earlier thought in the first quarter, falling at a 1.1% annual pace versus a prior estimate of 1.7%. Residential investment jumped at a 13.8% pace in the first quarter, up slightly from the initial estimate and providing a solid boost to overall growth.

Net exports contributed 0.13 percentage point to the first quarter's 1.2% growth rate, while private inventories subtracted 1.07 percentage point. Both categories tend to be volatile from quarter to quarter.

Write to Ben Leubsdorf at ben.leubsdorf@wsj.com

U.S. economic growth in early 2017 was modest but stronger than initially thought, and the pace is picking up in the current quarter.

Gross domestic product, a broad measure of the goods and services produced in the U.S. economy, expanded at an inflation- and seasonally adjusted annual rate of 1.2% in the first quarter, t he Commerce Department said Friday.

The agency last month estimated GDP growth at a 0.7% annual rate during the first three months of the year.

U.S. growth has averaged 2.1% a year since the recession ended in mid-2009. Looking through quarterly fluctuations, 2017 appears on a similar trajectory, based on recent projections by private economists and Federal Reserve policy makers.

"The recovery continues to be perhaps uninspiring, but it's awfully durable," said Michael Gapen, chief U.S. economist at Barclays.

First-quarter growth has repeatedly disappointed in recent years before rebounding in the spring and summer. This year looks set to follow that pattern, which some economists attribute to seasonal-adjustment problems.

Forecasting firm Macroeconomic Advisers on Friday predicted GDP would expand at a 3.3% annual pace in the second quarter.

President Donald Trump wants to boost sustained economic growth above 3% through a combination of tax cuts and other policy changes. But many economists say that will be difficult given sluggish growth in the size of the labor force and slow gains in worker productivity.

Friday's report also offered the government's first estimate of U.S. corporate profits during the first quarter. After-tax profits, without inventory valuation and capital consumption adjustments, fell 0.3% from the fourth quarter but were up 11.9% from a year earlier.

The profits pullback came after four consecutive quarterly gains. The Commerce Department said first-quarter profits were depressed by legal settlements involving U.S. subsidiaries of Credit SuisseAG, Deutsche Bank AG and Volkswagen AG.

Revisions to economic-output data for the first quarter were largely upbeat, with stronger growth for spending by consumers and businesses and a less-dramatic pullback in spending by governments compared with initial estimates released last month.

Consumer spending, which accounts for two-thirds of U.S. economic output, rose at a 0.6% annual rate, up from an earlier estimate of 0.3% but down from fourth-quarter growth of 3.5%.

Federal Reserve officials have shrugged off weak first-quarter spending as a temporary setback based on signs of underlying health, such as continued hiring and elevated consumer sentiment.

AutoZone Inc. this week reported its U.S. same-store sales fell 0.8% from a year earlier in the three months ended May 6. But the Memphis, Tenn.-based auto-parts retailer said sales picked up in the spring after a weak start.

"As we exited the quarter, we felt our sales trends had normalized," Chief Executive Bill Rhodes told analysts.

Capital expenditures by U.S. businesses accelerated in the first quarter. A broad measure, fixed nonresidential investment, rose at an 11.4% annual rate, up from an earlier estimate of 9.4% and the fourth quarter's 0.9% growth rate. Business spending rose broadly, led by a dramatic 28.4% jump in spending on structures such as mine shafts and oil wells.

A major driver of the recent investment pickup has been a rebound in domestic energy production.

But the Commerce Department on Friday also reported an April pullback in orders for long-lasting factory goods, a possible sign of soft business spending on new equipment this spring.

Spending by federal, state and local governments contracted less than earlier thought in the first quarter, falling at a 1.1% annual pace versus a prior estimate of 1.7%. Residential investment jumped at a 13.8% pace in the first quarter, up slightly from the initial estimate and providing a solid boost to overall growth.

Net exports contributed 0.13 percentage point to the first quarter's 1.2% growth rate, while private inventories subtracted 1.07 percentage point. Both categories tend to be volatile from quarter to quarter.

Write to Ben Leubsdorf at ben.leubsdorf@wsj.com

(END) Dow Jones Newswires

May 26, 2017 18:02 ET (22:02 GMT)