U.S. GDP Growth Revised Up to 1.4% in First Quarter--Update

By Ben Leubsdorf Features Dow Jones Newswires

The U.S. economic expansion remains on track as it prepares to enter its ninth year.

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Gross domestic product, a broad measure of the goods and services produced across the U.S. economy, expanded at a seasonally and inflation-adjusted annual rate of 1.4% in the first quarter, the Commerce Department reported Thursday.

That was up from an earlier estimate of 1.2% growth, and forecasters expect a further pickup in the second quarter, which ends Friday. Macroeconomic Advisers on Thursday projected a 3.3% GDP growth rate for the spring quarter and the Federal Reserve Bank of Atlanta's GDPNow model earlier this week predicted 2.9% growth.

The U.S. government will release its first official estimate for second-quarter GDP on July 28.

"Following a slowdown in the first quarter, economic growth appears to have rebounded, resulting in a moderate pace of growth so far this year, " Federal Reserve Chairwoman Janet Yellen saidin mid-June.

The economic expansion that began in July 2009 is already the third-longest growth run in U.S. history. Only the expansions of the 1960s and 1990s were longer, and forecasters surveyed in early June by The Wall Street Journal on average saw just a 16% probability of a new recession beginning within the next year.

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Despite its longevity, the current expansion has been disappointingly weak, with GDP growth averaging just 2.1% a year. That is weaker than any other recovery since at least 1949. Still, the unemployment rate has continued to decline, hitting 4.3% in May -- its lowest level in 16 years.

Some prominent economists think the recent slow growth reflects trends that emerged years before the 2007-09 recession: the end of an information technology-fueled productivity boom, and a decline in labor-force participation driven by demographic and other forces.

The U.S. experienced "a very deep recession superimposed on a sharply slowing trend," and it took time for forecasters to fully appreciate how much the underlying trend had slowed, said John Fernald, senior research adviser at the Federal Reserve Bank of San Francisco.

Looking forward, he said, subdued productivity gains and slow growth in the size of the workforce may continue to weigh on overall growth.

"We can hope for better, but the headwinds are fierce," Mr. Fernald said.

President Donald Trump has said he wants to boost growth above 3% a year by overhauling the tax system, rolling back regulations and enacting other policies. But the prospects for legislation remain uncertain, even with a Republican-controlled Congress, and many economists have warned it will be difficult to boost growth so much in a sustained fashion.

Grand Rapids, Mich.-based office-furniture company Steelcase Inc. last week reported orders in the Americas fell 3% from a year earlier in the three months ended May 26. Chief Executive James Keane told analysts that uncertainty about U.S. government policy may be causing some companies to delay projects.

"If you're in the health-care industry, you might be curious about what's going to happen as that gets unveiled, and how does that shape your investments," Mr. Keane said. "If you're interested in growing and you need to hire workers in the U.S., you might be interested in immigration reform....If you're interested in spending some of your repatriated cash, you're interested in tax reform."

The upward revision to first-quarter GDP growth in Thursday's report reflected stronger exports and consumer spending on services like health care, offset in part by weaker business investment in structures. Other revisions were largely minor.

The economy's broad contours remained unchanged from prior estimates. Consumer spending slowed from late 2016 while business investment accelerated in the first quarter, and overall growth slowed from the fourth quarter's 2.1% pace.

First-quarter growth figures have repeatedly disappointed in recent years, prompting economists to warn that seasonal-adjustment problems may be causing distortions. The Commerce Department has said it is working to address the issue, known as residual seasonality.

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

(END) Dow Jones Newswires

June 29, 2017 11:25 ET (15:25 GMT)