U.S. growth revised up, but still tepid

WASHINGTON — U.S. economic growth was revised modestly higher in the first quarter to account for a slightly faster pace of restocking by businesses and a smaller increase in imports, government data showed on Friday, but remained anemic.

Gross domestic product growth rose at annual rate of 1.9%, the Commerce Department said in its final estimate, up from the previously estimated 1.8%. The revision was in line with economists’ expectations.

The economy expanded at a 3.1% rate in the fourth quarter.

Growth has remained tepid so far in the second quarter, but both economists and the Federal Reserve are cautiously hopeful that activity will pick up in the third quarter.

First-quarter growth was supported by stronger than previously estimated accumulation of business inventories, slower imports and a smaller decline in residential construction, while the increase in business spending was revised lower.

Business inventories increased US$55.7 billion, above last month’s US$52.2 billion estimate. The change in inventories added 1.31%age points to GDP growth.

Business investment rose at a 2.0% rate instead of 3.4% as outlays on equipment and software were not as strong as previously estimated.

Consumer spending — which accounts for more than two-thirds of U.S. economic activity — grew at an unrevised 2.2% rate. Imports were revised down to a 5.1% growth pace from 7.5%. Even though exports were not as strong as previously reported, trade made a modest contribution to growth in the first quarter. Government spending contracted at a much sharper 5.8% rate rather than 5.1%, with defense outlays dropping at a revised 11.8% rate.

The report also showed that after-tax corporate profits were revised to an increase of 1.2% instead of a 0.9% drop. Economists had expected corporate profits to be revised to show a decline of 0.8%.

It also showed inflation pressures a little bit stronger, with the personal consumption expenditures price index revised to up 3.9% rate from 3.8% increase. That compared to the fourth quarter’s 1.7% increase.

The core PCE index closely watched by the Fed advanced at a 1.6% rate, the highest since the fourth quarter of 2009, rather than 1.4% reported last month. Fed officials would like to see this measure close to 2%.

© Thomson Reuters 2011