The world’s largest economy expanded more than previously projected in the first quarter as improved performance in trade and business investment more than made up for weaker consumer spending. Gross domestic product, the value of all goods and services produced, rose at a 1.1 percent annualized rate, compared with a previously estimated gain of 0.8 percent, a Commerce Department report showed Tuesday in Washington. Corporate profits at the start of the year were also revised up, giving a brighter picture to gross domestic income. The economy shows signs of accelerating so far this quarter as the drivers of growth have switched, with consumer spending rebounding while business investment lags behind. While gains in employment and low borrowing costs are helping propel household demand, uncertainty in the wake of Britain’s vote to leave the European Union is a longer-term risk to already-weak corporate outlays and exports. “We’re seeing stronger numbers in the second quarter, with good consumer spending,� Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “Companies don’t like uncertainty, so we may see more weak investment in the second half.� The median forecast of 71 economists surveyed by Bloomberg called for a 1 percent rise in GDP. Estimates ranged from an increase of 0.8 percent to 1.2 percent. The report marked the last of three readings for the quarter. The advance estimate of second-quarter GDP is scheduled for July 29, when annual revisions will also be issued. Projected Growth The economy will expand at a 2.5 percent rate in the second quarter and average 1.9 percent for this year, according to the median projection in a Bloomberg survey conducted early June. Household consumption, which accounts for about 70 percent of the economy, grew at a 1.5 percent pace in the first quarter, the weakest in two years and down from a prior estimate of 1.9 percent. Reductions to outlays on transportation, financial and recreational services swamped a bigger gain in health care. Offsetting the disappointing performance in consumer spending, the new figures showed the trade gap last quarter actually narrowed rather than widened as previously projected. Exports eked out a tiny gain, while imports declined more than last estimated. Also contributing to the stronger growth in the first quarter was stronger business spending on intellectual property, which grew at a 4.4 percent annualized rate, compared with a prior estimate of a 0.1 percent drop. That included higher readings on outlays for computer software and research and development. More Profits Corporate profits offered a better picture. Before-tax earnings rose 1.8 percent from the prior quarter compared with a previously reported 0.3 percent gain. Still, over the past year profits were down 4.3 percent. The bigger gain in profits lifted total income in the economy, which combines all forms of earnings. GDI increased at a 2.9 percent annualized pace, the most since the third quarter of 2014, up from a previous estimate of 2.2 percent rate. Theoretically, the income and GDP figures should match over time although they often diverge in the short term. The stronger performance by the earnings side of the ledger adds to signals that first-quarter GDP figures may have been underestimated. The 1.8 percentage point difference between GDI and GDP was the largest since the second quarter 2013.

Source