US GDP Revised Lower, but Corporate Profits Higher

The final revision to Q1 US GDP was disappointing in the headline and composition.  It is mitigated on the margins, for investors, by the substantial upward revision in corporate profits.

Growth was revised to 2.7% from 3.0% previously and 3.2% advance reading.  Consumption was cut to 3.0% from 3.5%.  Equipment and software spending was revised to 11.4% from 12.7%. Net exports were a 0.82% drag rather than 0.66%. Blunting this was news that inventories contributed 1.87 percentage points, a little more than the 1.58% previously estimated.                            

This combination of less consumption and investment and higher inventories plays on fears of the fragility of the recovery.   The composition may encourage some economists to revise lower the US growth path.  

Meanwhile corporate profits were revised higher to 8.0% from 5.5%, which is the same as in Q4.  Corporate income taxes also rose and the increased government revenue is one the reasons why the size of the monthly Treasury auctions have been reduced slightly.  On an after tax basis, corporate profits rose by 5% rather than the early estimate of 2.1%.                                  

The market’s reaction was mixed; initially taking the dollar higher on new concerns about the strength of the world economy, but euro and sterling buying was seen on the pullback.

Marc Chandler


Marc Chandler joined Brown Brothers Harriman in October 2005 as the global head of currency strategy. Previously he was the chief currency strategist for HSBC Bank USA and Mellon Bank. In addition to frequently providing insight into the developments of the day to newspapers and news wires, Chandler's essays have been published in the Financial Times, Barron's, Euromoney, Corporate Finance, and Foreign Affairs. Marc appears often on business television and is a regular guest on CNBC and writes a blog called Marc to Market. Follow him on twitter.