WASHINGTON – U.S. economic growth in early 2017 was stronger than initially thought, and broad growth is poised to pick 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, the Commerce Department said Friday.
The agency last month estimated GDP growth at a 0.7% annual rate during the first three months of 2017. Economists surveyed by The Wall Street Journal had expected a more modest upward revision to 0.8% growth.
The details were encouraging, with overall growth boosted by stronger-than-previously estimated household spending and business investment. Still, it was a slowdown from the fourth quarter's GDP growth rate of 2.1%.
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 to a seasonally adjusted annual rate of $1.736 trillion.
The profits pullback came after four consecutive quarterly gains. The Commerce Department said first-quarter profits were depressed by several legal settlements, including federal penalties on U.S. subsidiaries of Deutsche Bank and Credit Suisse and an environmental-regulation settlement with automaker Volkswagen.
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From a year earlier, after-tax profits were up 11.9% in the first three months of 2017.
Buoyed by a stronger U.S. housing sector, Atlanta-based Home Depot Inc. last week raised its earnings forecast for the year. The hardware-store chain said its U.S. same-store sales were up 6% on the year in the three months ended April 30.
"There's demand that's being created by this housing market that is very strong," Chief Financial Officer Carol Tomé told analysts.
While broad economic growth slowed over the winter, economists expect a rebound in the current quarter. The Federal Reserve Bank of Atlanta's GDPNow model last week projected a second-quarter growth rate of 4.1%. Forecasting firm Macroeconomic Advisers on Thursday predicted 3.2% growth in the spring quarter.
Consumer spending, which accounts for the majority of U.S. economic output, slowed a bit less in the first quarter than earlier thought. Personal consumption expenditures 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.
"Although the incoming data showed that aggregate spending in the first quarter had been weaker than participants had expected, they viewed the slowing as likely to be transitory," according to minutes of the Fed's May 2-3 policy meeting released Wednesday.
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 Tuesday.
Capital expenditures by U.S. businesses accelerated in the first quarter. A broad measure, fixed nonresidential investment, rose at a 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 investment pickup has been a rebound in domestic energy production. The U.S. oil-rig count peaked in October 2014 and declined as global prices tumbled but has moved higher since last summer, according to oil field-services company Baker Hughes Inc.
Government spending contracted less than earlier thought in the first quarter, falling at a 1.1% annual pace versus a prior estimate of 1.7%.
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.
Inflation picked up in early 2017. The price index for personal consumption expenditures rose an annualized 2.4% in the first quarter. Excluding food and energy prices, the PCE index rose an annualized 2.1%. The Fed has set an inflation target of 2% per year, as measured by the PCE gauge.
But several broad price measures softened in March and April.
"We really aren't seeing much progress on core inflation," Fed Governor Lael Brainard said Monday. "If anything the last few months we've seen some stalling out of core inflation."
Investors and private forecasters still expect the Fed will likely raise short-term interest rates again at its upcoming meeting in mid-June.
The Commerce Department's latest report on GDP can be accessed at: https://bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
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(END) Dow Jones Newswires
May 26, 2017 08:45 ET (12:45 GMT)