US economic growth slowed in the first quarter but not as sharply as previously estimated, with gains in exports and software investment partially offsetting weak consumer spending.
Gross domestic product increased at a 1.1 percent annual rate, rather than the 0.8 percent pace reported last month, the Commerce Department said on Tuesday in its third GDP estimate.
First-quarter GDP growth has now be revised higher by six-tenths of a point since the advance estimate was published in April. The economy grew at a rate of 1.4 percent in the fourth quarter. The first-quarter revision was broadly in line with economists’ expectations.
There are signs the economy has regained momentum in the second quarter, with retail sales and home sales rising in both April and May, even though business spending continues to struggle and job growth has slowed.
But uncertainty stoked by Britain’s shock vote to leave the European Union poses a risk to growth for the rest of year
Federal Reserve Chair Janet Yellen told lawmakers last week that data pointed to “a noticeable step-up” in GDP growth in the second quarter. The Atlanta Federal Reserve is currently estimating second-quarter GDP rising at a 2.6 percent rate.
When measured from the income side, the economy grew at a 2.9 percent rate in first quarter and not the previously reported 2.2 percent pace, reflecting upward revisions to corporate profits. That was the quickest pace since the third quarter of 2014.
The average of GDP and GDI, an alternative measure of U.S. economic growth, increased at a 2.0 percent pace in the first quarter, up from an initial estimate of 1.5 percent.
U.S. financial markets were little moved by the data as investors assessed the implications of last week’s so-called “Brexit” referendum.
EXPORTS, SOFTWARE REVISED UP
Economic growth in the first quarter was constrained by a strong dollar and sluggish global demand. Output was also hampered by businesses’ efforts to reduce an inventory overhang, with a further drag coming from lower oil prices, which have sparked deep spending cuts on capital goods such as equipment.
Economists also believe the model used by the government to strip out seasonal patterns from data is not fully accomplishing its goal. The economy has underperformed in the first quarter in five of the last six years.
The government has acknowledged shortcomings with its seasonal adjustment model. The government early this month said beginning in mid-2018, it planned to produce estimates of GDP and its major components that are not seasonally adjusted.
These will be released together with the seasonally adjusted GDP estimates.
First-quarter business spending on software, research and development was revised to show it rising at a 4.4 percent rate instead of falling at a 0.1 percent rate. Business spending on equipment fell at an 8.7 percent pace as opposed to the 9.0 percent rate reported last month.
Overall, business spending sliced off 0.58 percentage point from first-quarter GDP instead of the previously reported 0.81 percentage point.
Export growth was revised to show a 0.3 percent rate of increase instead of the previously reported 2.0 percent pace of contraction. With imports weak, that resulted in a smaller trade deficit, which added 0.12 percentage point to GDP growth.
Trade was previously reported to have subtracted 0.21 percentage point from GDP growth.
Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised down to a 1.5 percent rate, the slowest pace in two years. Consumer spending was previously reported to have increased at a 1.9 percent rate.
The downward revision reflected weak spending on services such as transportation and recreation. But with household incomes and savings rising, there is potential for consumer spending to accelerate. Savings were revised up to $796.7 billion from $782.6 billion.
There was a minor revision to inventory investment. Businesses accumulated $68.3 billion worth of inventory, instead of the $69.6 billion estimated last month. That suggests inventories could remain a drag on growth in the quarters ahead.
After-tax corporate profits increased at a 2.2 percent rate in the first quarter, rather than the previously reported 0.6 percent pace. Profits tumbled at an 8.4 percent pace in the fourth quarter, when they were held down in part by a $20.8 billion transfer payment related to the BP oil spill in the Gulf of Mexico in 2010.