The Economy

U.S. Economic Growth Revised Upward to 0.8%

First-quarter GDP got a boost from a buoyant housing market but was still the weakest performance since Q1 of last year.
Katie Kuehner-HebertMay 30, 2016

The U.S. economy’s growth in the first quarter was not as slow as originally estimated, with a strong housing market helping to offset tepid business investment.

The Commerce Department on Friday reported that GDP grew at an annual rate of 0.8%. Despite the upward revision from the government’s earlier 0.5% estimate in April, it was still the weakest performance since the first quarter of 2015.

Economists polled by The Wall Street Journal had expected growth would be revised up to a 1.0% pace. The economy grew at a 1.4% rate in the fourth quarter.

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“It just confirms that we had a soft start to the year but not quite as bad as we thought,” Ethan Harris, head of global economics at Bank of America Merrill Lynch, told The New York Times. “Business investment was very weak, but the one bit of positive news was a surge in home construction.”

The Commerce Department said corporate profits rose just 0.3% in the first quarter, after a 7.8% drop in the fourth quarter of 2015. Profits were down 3.6% compared with a year earlier.

“This weakness in profits is likely contributing to the recent pullback in business spending and hiring growth,” J.P. Morgan Chase economist Daniel Silver told the WSJ.

Spending on residential construction increased at a 17.1% rate in the first quarter, the fastest pace since the fourth quarter of 2012. It was revised upward from the earlier estimate of 14.8%.

There was no revision to consumer spending, which accounts for more than two-thirds of U.S. economic activity. Spending increased at a pace of 1.9%, a decline from the fourth quarter’s 2.4% rate.

“While first-quarter GDP remained low despite the upward revision, there are a number of reasons to anticipate a rebound in the second quarter,” said National Association of Federal Credit Unions chief economist Curt Long. “Incoming data has been noticeably stronger, the drags from low oil prices and a strong dollar were less than previously estimated, and there is still a possibility that the government’s seasonal adjustment continues to underestimate GDP in the first quarter while boosting it in subsequent quarters.”