U.S. economic growth last quarter was revised down by less than expected amid stronger consumption and exports than initially reported, suggesting the expansion was on relatively firm footing before President Donald Trump’s escalation of the trade war with China.
Inflation-adjusted gross domestic product increased at a 3.1% annualized rate in the January-March period, compared with an initially reported 3.2% and analyst estimates for a revision to 3%, Commerce Department data showed Thursday. Consumer spending, which accounts for the majority of the economy, grew 1.3%, topping projections for an unrevised 1.2% though still the slowest in a year.
The figures may alleviate some investor concern that the economy is losing momentum -- highlighted by an inversion in part of the Treasury yield curve -- and potentially help Trump as he starts his reelection campaign. At the same time, recent reports suggesting a dimmer outlook this quarter, along with the intensifying tariff conflict, are casting a shadow over an expansion poised to become the nation’s longest on record in July.
U.S. stocks rose Thursday, on track for their first gain in three days, while Treasury prices fell and the dollar advanced.
A separate report Thursday showed pending home sales unexpectedly fell in April from the prior month, adding to signs the housing market is struggling to recover.
Excluding the trade and inventories components that gave a boost to GDP, final sales to domestic purchasers increased at a 1.5% pace -- the slowest since 2015, though revised from 1.4%. This measure, often looked to by economists as a gauge of underlying demand, suggests growth in the quarter was weaker than the headline number indicates.
In addition, the report gave the first read on business earnings for the period, suggesting corporate America is facing headwinds from the trade war and the effects of Republican tax cuts may be waning. Pretax corporate profits fell 2.8% from the prior quarter, the biggest drop since 2015, and were up 3.1% from a year earlier, the least since 2017.
Subdued Inflation
Also, inflation was even more subdued than initially reported, which could bolster some calls for a Federal Reserve interest- rate cut. The personal consumption expenditures price index, excluding food and energy, rose at a 1% pace -- the slowest in three years and revised from 1.3%. The Fed targets 2% annual gains for the broader PCE price index.
The combined 1.56 percentage-point boost from inventories and trade was only slightly below the originally-reported 1.68-point lift. This surge could ultimately weigh on growth in coming quarters, adding to the need for consumers to become the main growth driver again.