US revises economic growth to 1.1% in first quarter

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, the commerce department said on Tuesday in its third estimate.

GDP increased at a 1.1% annual rate, rather than the 0.8% reported in May, the department said. The economy grew at a rate of 1.4% in the fourth quarter.

First-quarter GDP growth has now been revised higher by 0.6 percentage point since the advance estimate was published in April. 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, job growth has slowed and uncertainty stoked by Britain’s shock vote to leave the EU poses a risk to growth.

Federal Reserve chairwoman Janet Yellen said last week data pointed to “a noticeable step-up” in growth in the second quarter. The Atlanta Federal Reserve estimates second-quarter GDP will rise 2.6%.

When measured from the income side, the economy grew at a 2.9% rate in the first quarter and not the previously reported 2.2% 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 US economic growth, increased at a 2% pace in the first quarter, up from an initial estimate of 1.5%.

US financial markets were little moved by the data as investors assessed the implications of last week’s Brexit referendum.

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 past six years.

The government has acknowledged shortcomings with its seasonal adjustment model. The government said early in June that beginning in mid-2018 it planned to produce estimates of GDP and its major components that were not seasonally adjusted. These would 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% rate instead of falling at a 0.1% rate. Business spending on equipment fell at an 8.7% pace as opposed to 9% reported in May.

Overall, business spending sliced off 0.58 percentage point from firstquarter GDP instead of the previously reported 0.81 percentage point.

Export growth was revised to show a 0.3% rate of increase instead of the previously reported 2% 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 twothirds of US economic activity, was revised down to a 1.5% rate, the slowest pace in two years. Consumer spending was previously reported to have increased at a 1.9% 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 to $796.7bn from $782.6bn.

There was a minor revision to inventory investment.

Businesses accumulated $68.3bn worth of inventory, instead of the $69.6bn estimated in May. That suggests inventories could remain a drag on growth in the quarters ahead.

After-tax corporate profit increased 2.2% in the first quarter, rather than the previously reported 0.6%. Profits tumbled 8.4% in the fourth quarter, when they were held down in part by a $20.8bn transfer payment related to the BP oil spill in the Gulf of Mexico in 2010.