WASHINGTON – U.S. economic growth was slightly stronger than previously thought in early 2017, and is on track to strengthen further in the almost-completed second quarter.
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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 said Thursday.
Economists surveyed by The Wall Street Journal had expected a 1.2% growth rate, unchanged from the government's earlier estimate in late May.
The upward revision reflected stronger exports and consumer spending on services during the first quarter, offset in part by weaker business investment in structures. The economy's broad contours remained unchanged from prior estimates: Consumer spending slowed from late 2016 while business investment accelerated in the first quarter.
A pickup in consumer spending during the second quarter, which ends Friday, is expected to generate stronger overall growth. Forecasting firm Macroeconomic Advisers on Wednesday projected a 3.3% GDP growth rate for the spring quarter. The Federal Reserve Bank of Atlanta's GDPNow model this week predicted 2.9%, and J.P. Morgan Chase estimated 3.0% growth.
The Commerce Department's first official estimate for second-quarter GDP will be released July 28.
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"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 told reporters in mid-June.
The economic expansion that began in July 2009 is set to enter its ninth year as 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 Journal on average saw just a 16% probability of a new recession beginning within the next year.
Despite its longevity, the current expansion has been disappointingly weak, with GDP growth averaging just 2.1% per year. That's 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% per 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 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 healthcare 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 and how that may affect your business and whether you can invest in new facilities for that. If you're interested in spending some of your repatriated cash, you're interested in tax reform and how repatriation might play a role there."
Thursday's report showed consumer spending rose at a 1.1% pace in the first quarter, up from an earlier estimate of 0.6% growth. That reflected upward revisions for spending in categories like health care and financial services and insurance.
Business spending was strong in early 2017. Fixed nonresidential investment rose an annualized 10.4%, led by a 22.6% gain in spending on structures that was revised down from an earlier estimate of 28.4% growth.
Government spending declined in the first quarter, reflecting a pullback in federal defense outlays and state and local investment. Residential investment posted solid growth for a second straight quarter.
Foreign trade was a tailwind for the economy in the first quarter, with net exports contributing 0.23 percentage point to the GDP growth rate. Private inventories were a headwind, subtracting 1.11 percentage points.
The report also said after-tax U.S. corporate profits, without inventory valuation and capital consumption adjustments, fell 0.7% from the fourth quarter and were up 11.5% in the first quarter from a year earlier. Those were down from earlier estimates of a 0.3% quarterly decline and 11.9% annual growth.
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
June 29, 2017 08:45 ET (12:45 GMT)