The latest revised GDP estimates for the U.S. covering the first quarter of the year showed that economic growth grew at a soft pace than initially thought. However, corporate profits were seen rebounding during the same period.
The US Gross Domestic Product or GDP which measures the dollar value of all goods and services produced in the United States grew at a pace of 2.2% on a seasonally adjusted basis in the first quarter of the year, when adjusted for inflation. This was a modest downward revision to the Q1 GDP after previous estimates showed that the GDP increased 2.3%.
Business investment was revised higher during the same period but this was offset by downward revision in other components, including inventories which declined.
Compared to the previous year, GDP output expanded at a pace of 2.8% in the first three months of the year marking the strongest growth in over three years.
Following the release of the GDP data, economists forecast that growth could pick up in the coming quarters, which is expected to put the overall GDP growth for 2018 on a strong footing. Latest estimates for the second quarter GDP are already point to a 2.9% increase on an annual basis with some other estimates projecting as much as 4.0% GDP growth during the year.
The data from last week also included the government’s official estimates on U.S. corporate profits for the first time during the three months of the year. Data showed that post-tax profits, without including inventory valuation or capital consumption, rose 7.8% on a seasonally adjusted basis.
This marks a rebound following the previous quarter’s decline of 9.6%. When compared to the same period from the year before, corporate profits were little changed at 0.1%.
Economists note that the volatile decline in Q4 of 2017 and the rebound in Q1 2018 was due to the change in the corporate tax cuts that were implemented by the Trump administration in December 2017.
Pre-tax profits measured with inventory valuation and capital consumption adjustment had declined 0.6% in the first three months of the year. This marks an increased decline following a 0.1% decline in the quarter before. However, compared on an annual basis, pre-tax profits were up 4.3%.
While the data remained mixed, further clarity is expected in the coming quarters. This comes amid a sharp cut in corporate tax from 35% to 21% which went into effect from January 1, 2018. The one-time tax effects were also seen distorting company earnings as well.
Corporate profits in the United States were on a rebound over the past few years after weakening until 2015. This came due to the fall in the oil prices.
Data also showed that corporate earnings were boosted by healthy labor market conditions and an overall improving economy. The tax cuts are expected to boost after-tax profits among the corporate in the coming months, attributing to the hawkish forecasts on GDP.
Capital expenditure including fixed non-residential investments was seen rising 9.2% on an annual basis during the first quarter. This was a higher jump following a 6.1% increase given during the previous estimates. The bump came from an upward revision in the investment in intellectual property and software.
The data from last week also showed that consumer spending was slightly revised down. Consumer spending which accounts for close to two-thirds to the U.S. economic output was seen revised to show an annual increase of 1.0% in the first quarter. This was a downward revision from the previous estimates of 1.0%.
The U.S. housing sector however performed poorly as residential fixed investment declined at an annual rate of 2.0%. The government spending was seen rising 1.1% on the year with an increase in federal government expenditures on military and domestic programs.
Exports also contributed a 0.0% increase to the overall GDP with private inventories rising 0.13%.