US Q1 growth revised higher on upbeat corporate profits

The United States first quarter gross domestic product was revised higher, although it slowed in comparison to the last quarter of 2015 on better corporate profits, hit largely the last year. However, growth remained below market expectations, signaling a sluggish demand outlook in the near term.

The country’s corporate profits have started to stabilize as oil prices hover around USD50/bbl amid recovery in economic growth. But companies still feel the pressure on rising wage growth and weak global economic expansion, reports said.

Gross domestic product rose at a 0.8 percent annual rate as opposed to the 0.5 percent pace reported last month, recording the weakest performance since the first quarter of 2015, the Commerce Department said in its second GDP estimate on Friday.

Further, the government also reported a rebound in after-tax corporate profits, rising at 0.6 percent, after plunging 8.4 percent in the last quarter. When measured from the income side, the economy grew at a 2.2 percent rate after expanding at a 1.9 percent pace in Q42015.

"First quarter growth still looks disappointing, but the most recent data indicate that activity is bouncing back solidly in Q2," Barclays said in a research note.

However, business sector demand remained weak. Non-residential fixed investment weakened in Q1 by 6.2% from -2.1% in Q4 in 2015. Residual seasonality has plagued first-quarter GDP data, with growth underperforming in last few years since the economic recovery started through mid-2009.

Moreover, the Federal Reserve Bank of Atlanta is currently estimating Q2 GDP to rise at a rate of 2.9 percent but high level of inventories pose downside pressure to this forecast. However, there was no revision to consumer spending, which accounts for more than two-thirds of U.S. economic activity, while spending increased at 1.9 percent, a slowdown from the fourth quarter's 2.4 percent rate.

Meanwhile, a Reuters poll of economists had projected Q1 GDP to be revised up to a 0.9 percent rate after the economy grew at 1.4 percent in the Q4.

Business inventories grew to USD69.6 billion, compared to USD60.9 billion estimated last month. Households remained frugal, cutting back on purchases, especially automobiles.