GDP Revised and Increases, Corporate Profits Down

Gross domestic product increased at a 1.4 percent annual rate instead of the previously reported 1.0 percent pace, the Commerce Department said on Friday in its third GDP estimate.

GDP growth was initially estimated to have risen at only a 0.7 percent rate. The economy grew at a rate of 2.0 percent in the third quarter and expanded 2.4 percent for all of 2015. Economists polled by Reuters had expected that fourth-quarter GDP growth would be unrevised at a 1.0 percent rate.

The report showed that consumer spending continued to propel the economy, while exports and local government spending fell.

gdpPersonal consumption grew 2.4%, higher than the 2% gain earlier reported.

Adjusted, pretax profits fell at a 7.8% annual rate. This put them down 3.1% in 2015, their biggest decline since 2008, partly due to the oil crash and higher labor costs.

Profit data isn’t adjusted for inflation.

“The strengthening dollar, the sharp decline in energy costs, and increasing wage pressures all played a role in falling profit margins and corporate income,” said Jim Baird,chief investment officer for Plante Moran Financial Advisors. “Against that backdrop, it’s no surprise that businesses trimmed capital expenditures.”

“Consumer spending and housing are keeping the economy going, despite major drags from net exports, capital spending and an inventory cycle,” IHS economist Nariman Behravesh.

Many economists expect growth to accelerate slightly in the first quarter, though signals have been mixed. The Commerce Department’s broad measure of consumer spendingshowed a healthy gain in January, but retail sales were lackluster for the first two months of the year. Durable goods orders, a measure of manufacturing demand, fell sharply in February after strong increase in January, the Commerce Department said Thursday.