U.S. First-Quarter Growth Revised Down to 3.1% Pace From 3.2%

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.

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.

Trade added 0.96 percentage point to GDP growth, revised down from 1.03 point, as the upward revision to imports outstripped higher exports. The inventory contribution was revised to 0.6 point from 0.65 point, as retail and wholesale estimates were lowered and manufacturing was higher, according to the report.

Read more: U.S. Goods-Trade Gap Widens Second Month to Highest This Year

The report showed upward revisions to investment in structures, along with downward revisions to private equipment investment, particularly industrial gear, as well as software. The higher consumer spending reflected data on motor vehicle registrations, the Commerce Department said.

A separate report from the Labor Department Thursday showed filings for unemployment benefits stayed relatively low, as the job market remains a bright spot. Jobless claims rose 3,000 to 215,000 in the week ended May 25, close to the median estimate of economists for 214,000.

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Gross domestic income, adjusted for inflation, rose 1.4% in the first quarter, following a 0.5% reading that was revised from 1.7%. Fourth-quarter wages and salaries were revised lower by $54.7 billion based on new Labor Department data. Government spending in the first quarter was revised to a 2.5% annualized gain from 2.4%. The GDP report is the second of three estimates for the first quarter; the third is due June 27.