WASHINGTON (Reuters) -The U.S. economy contracted a bit faster than previously thought in the first quarter amid tepid consumer spending, underscoring the distortions caused by the Trump administration’s aggressive tariffs on imported goods.
Gross domestic product decreased at a downwardly revised 0.5% annualized rate last quarter, the Commerce Department’s Bureau of Economic Analysis (BEA) said in its third estimate of GDP on Thursday. It was previously reported to have dropped at a 0.2% pace. The revision reflected a sharp downgrade to consumer spending, which is now estimated to have increased at only a 0.5% pace instead of previously reported 1.2% rate.
The economy grew at a 2.4% rate in the fourth quarter. Domestic demand growth was slashed to a 1.9% rate from the previously reported 2.5% pace.
A flood of imports as businesses rushed to bring in goods before President Donald Trump’s sweeping tariffs kicked in accounted for the bulk of the decrease in GDP. Consumer spending also slowed as the boost from pre-emptive buying of goods, especially motor vehicles, ahead of the import duties faded.
The flow of imports has since subsided, positioning GDP for a sharp rebound in the second quarter. The Atlanta Federal Reserve is forecasting GDP accelerating at a 3.4% rate this quarter. Given the gyrations from imports, economists cautioned against interpreting the anticipated rebound in GDP as a sign of economic strength. Data on retail sales, the housing and labor markets have suggested economic activity is softening.
“The difficulty of accurately capturing the extraordinary foreign-trade and inventory gymnastics that companies undertook to avoid U.S. tariffs created serious measurement challenges that will linger for some time to come,” said Lou Crandall, chief economist at Wrightson ICAP
When measured from the income side, the economy grew at an upwardly revised 0.2% rate in the first quarter. Gross domestic income (GDI) was initially estimated to have declined at a 0.2% pace. That reflected an upward revision to corporate profits. Profits from current production with inventory valuation and capital consumption adjustments decreased $90.6 billion in the first quarter, an upward revision of $27.5 billion.
The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, dropped at an upwardly revised 0.1% rate.
Gross domestic output was initially reported to have decreased at a 0.2% pace.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
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