First-Quarter GDP Growth Revised Slightly Down to 3.1%

U.S. economic growth accelerated in the first quarter, the government confirmed on Thursday, but there are signs that the temporary boost from exports and inventory accumulation is already fading, with production at factories slowing.

Gross domestic product increased at a 3.1% annualized rate, the government said in its second reading of first-quarter GDP. That was slightly down from the 3.2% pace estimated last month.

The economy grew at a 2.2% pace in the October-December period. While the government trimmed its initial estimate for inventory investment, export growth was raised. These two volatile components were the key drivers of the rise in GDP in the first quarter.

There was a small upward revision to consumer spending growth. Business spending on equipment actually contracted in the last quarter, while the housing market was weaker than initially thought.

Economists polled by Reuters had expected GDP growth for the first three months of the year would be trimmed to a 3.1% rate. Excluding trade, inventories and government spending, the economy grew at a 1.3% rate as reported last month. That was the slowest since the second quarter of 2013.

The economy will mark 10 years of expansion in July, the longest on record.

Growth is, however, slowing. Industrial production and orders for long-lasting manufactured goods declined in April as businesses placed fewer orders at factories while working off the inventory overhang. Retail sales were also weak last month and the housing market continues to struggle.

The moderation in growth largely reflects the fading stimulus from the Trump administration’s hefty tax cuts and spending increases last year. A trade war between the United States and China is also seen hurting the economy.

The Atlanta Federal Reserve is forecasting GDP rising at a 1.3% pace in the second quarter.

The government also reported on Thursday after-tax profits, without inventory valuation and capital consumption adjustment, which correspond to S&P 500 profits, fell at a 0.8% rate or $15.9 billion in the first quarter after falling at a 1.7% pace or $34.2 billion in the fourth quarter.

An alternative measure of economic growth, gross domestic income (GDI), increased at a rate of 1.4% in the first quarter, compared to fourth quarter’s 0.5% pace.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 2.2% rate in the January-March period, up from a 1.3% growth pace in the fourth quarter.

Export growth in the first quarter was revised up to a 4.8% rate, outpacing an upgrade to imports. As a result, trade added 0.96 percentage point to GDP rather than the 1.03 percentage points estimated last month. Trade tensions between the United States and China have caused wild swings in the trade deficit, with exporters and importers trying to stay ahead of the tariff fight between the two economic giants.

The standoff has also had an impact on inventories. Growth in inventories was revised down to a $125.5 billion rate in the first quarter from the previously estimated $128.4 billion pace.

Part of the inventory build was because of weak demand, especially in the automotive sector, which is weighing on production at factories. Inventories contributed 0.60 percentage point to first-quarter GDP, rather than the 0.65 percentage point reported last month.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised up to a 1.3% rate. Consumer spending was previously reported to have increased at a 1.2% pace in the first quarter.

Business spending on equipment dropped at a 1.0% pace instead of rising at a 0.2% rate. That was the weakest since the first quarter of 2016. Government investment increased at a 2.5% rate. It was previously reported to have risen at a 2.4% rate.