U.S. Q1 GDP growth revised up to 1.2 pct, driven by upward revision to personal consumption and fixed investment

The second estimate of the real GDP growth of the U.S was upwardly revised for the March quarter to 1.2 percent annualised from the advance estimate of 0.7 percent. The upward revision was mainly due to personal consumption and fixed investment. The upward revision to these segments were partially countered by downward revision to private inventories.

Consumer spending growth was revised higher to 0.6 percent from 0.3 percent; however, it still remains weak and is a notable slowdown from the 3.5 percent rate registered in the fourth quarter of 2016. Meanwhile, spending on services was slightly stronger, whereas the drop in durable goods was smaller. Business investment was already at a solid spot in the first quarter and was upwardly revised to 11.4 percent, indicating stronger spending on structures and intellectual property. Residential investment stayed almost the same.

On the other hand, inventory investment negatively contributed 1.1 percentage points from the headline economic growth, as compared with the 0.9 percentage points subtraction recorded in the advance estimate.

The upward revision of the economic growth continues the pattern of upward revisions to GDP estimates between the first and third release, noted TD Economics in a research report. This gives some encouragement that the softness in the first quarter was not as bad as was expected earlier, but it does not alter the story of another weak beginning to the year, followed by a recovery in the second quarter. Several factors negatively impacting the first quarter were transitory, and a reversal in the second quarter is likely to lead a recovery of greater than 3 percent growth, stated TD Economics.

“Looking through the noisy quarter-to-quarter swings in GDP, we judge underlying growth in the U.S. economy to be running slightly better than 2%”, added TD Economics.

According to a Barclays research report, the next week’s data on April personal consumption, May auto sales and May employment are expected to put consumption on a stronger footing in the second quarter. The U.S. economy is expected to recovery to 2.5 percent growth in the June quarter and is likely to expand around 2 percent for the whole of 2017, added Barclays.