Economic Report: U.S. economy contracted at 1.5% annual clip in first quarter, revised GDP shows


The numbers: The U.S. economy contracted by a 1.5% annual rate in the first quarter, new government figures show, largely because of a record trade deficit. And corporate profits fell for the first time in five quarters.

The decline in gross domestic product, the scorecard of sorts for the economy, was revised from a previously estimated 1.4% dropoff.

Most of the weakness in first-quarter GDP stemmed from a sky-high U.S. international trade deficit. Lower government spending and business inventories also contributed.

Adjusted pretax corporate profits, meanwhile, fell at a 2.3% rate in the first quarter after a 0.7% gain in the prior three months.

On a year-on-year basis, however, corporate profits are up a strong 12.5%.

Economists predict GDP will speed up in the second quarter to a 2% annual rate or a bit higher. GDP figures are adjusted for inflation.

Key details: The increase in consumer spending was raised to a solid 3.1% from an initial 2.7%. Household outlays account for about 70% of U.S. economic activity.

Business investment, another pillar of the economy, was also robust. Residential housing was not quite as strong as initially reported, however.

Most of the other figures in the GDP report were little changed.

Big picture: The U.S. is still expanding at a solid pace, most economic signposts show, but growth has slowed. And with the Federal Reserve raising interest rates, growth could slow even further.

The strength of consumer spending and red-hot labor market, however, could keep the economy on a stable foundation. The big questions? How much do high inflation and rising interest rates start to induce wider cracks in the economy.

Market Reaction: The Dow Jones Industrial Average DJIA, +0.60% and S&P 500 SPX, +0.95% were set to open higher in Thursday trades.

Stocks rose on Wednesday after the Fed minutes from its early May meeting suggested the central bank might not raise interest rates quite as rapidly as Wall Street had expected.

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