• US raises Q1 growth estimate to 1.1%


    WASHINGTON, D.C.: The US economy’s tepid growth in the first quarter was revised higher on Tuesday and analysts expect a pick-up in the second quarter despite concerns about Britain’s EU exit vote.

    Growth in gross domestic product (GDP)—the broad measure of the world’s largest economy’s output in goods and services—was revised upward to 1.1 percent from the previous estimate of 0.8 percent, the Commerce Department said.

    That was the slowest growth since the 2015 first quarter’s 0.6 percent slump, when unusually severe winter weather hammered the economy.

    “US economic growth, as measured by GDP, took another winter vacation,” said Scott Hoyt of Moody’s Analytics.

    “However, growth in the second quarter appears to have rebounded sharply,” he said.

    “Despite a weak May employment report and increased downside risks generated by the British decision to exit the European Union, prospects are good.”

    The GDP first-quarter revision came in slightly better than analysts expected. The economy grew 1.4 percent in the 2015 fourth quarter.

    President Barack Obama’s chief economic adviser called for more steps to boost growth.
    “Strong growth in residential investment boosted real GDP growth, but weakness in business investment—exacerbated by weak foreign demand and low oil prices—weighed on growth,” said Jason Furman, chairman of the Council of Economic Advisers.

    “Going forward, increased uncertainty, including uncertainty regarding the consequences of British voters’ decision last week to leave the European Union, underscores the importance of proactive policy steps to strengthen the US economy.”

    The Commerce Department’s third estimate of GDP reflected more data available for the first quarter.

    Higher exports were a main driver of the upward revision. Exports ticked up 0.3 percent instead of the 2.0-percent decline previously estimated. Nonresidential fixed investment also was revised higher.

    However, consumer spending, the engine of the economy that accounts for two thirds of activity, was revised lower. Personal consumption expenditures rose 1.5 percent in the first quarter, weaker than the prior estimate of a 1.9-percent increase.

    The housing sector remained a bright spot in the economy with its best performance since late 2012. Investments jumped 15.6 percent, slightly less than previously estimated.

    Government spending rose 1.3 percent, driven entirely by increases in state and local governments. Federal spending fell 1.6 percent.

    Corporate profits rose 1.8 percent after falling 7.8 percent in the fourth quarter.

    Second-quarter pickup?
    The Commerce Department is due to publish its first estimate of second-quarter GDP on July 29. Many analysts have forecast a pick-up in growth to more than 2.0 percent in the April-June period.

    “The outlook for Q2 . . . is settling in about 2.0 percent. The average for the first half will be just 1.5 percent,” Steven Ricchiuto, chief economist at Mizuho Securities USA, said in a client note.

    Most analysts viewed May’s shockingly weak employment report—with only 38,000 jobs added—as an outlier in an overall picture of healthy job growth that has helped to lower the US unemployment rate to 4.7 percent.

    New data on consumer confidence showed a rebound in sentiment in June after two months of declines.

    The Conference Board said its consumer confidence index rose to 98.0 from 92.4 in May, with optimism growing in business and labor market conditions. The index was at the highest level since 99.1 in October.

    The solid gain in confidence in the final month of the second quarter in June could provide momentum for consumer spending.

    “This morning’s report suggests that household sentiment is regaining its footing, which should be constructive for Q3 spending growth,” Barclays analyst Jesse Hurwitz said in a client note.

    For all of 2016, the Federal Reserve forecasts the economy will expand 2.0 percent, after 2.4 percent in 2015.



    Please follow our commenting guidelines.

    Comments are closed.