US: Q1 GDP indicates faster growth but lower profits - Natixis

Thomas Julien, Research Analyst at Natixis, notes that US Q1 GDP was revised from 0.7% to 1.2% QoQ at annual rate in the second estimate, above consensus expectations and Natixis (+0.9%).

Key Quotes

“Personal consumption increased at a faster pace, explaining most of the upward revision. Business investment was also revised a touch higher. Other components were left mostly unchanged.   Meanwhile, profits declined slightly in the first quarter with the profit rate losing 0.3pts to 11.1%. Looking forward we expect growth to pick-up in the upcoming quarters.”

“Positive surprise is mostly attributable to a bigger than expected revision of consumption as both durable goods and services spending were revised higher. Meanwhile, business investment also increased at a faster pace with stronger spending on intellectual property products and structures. On the other hand, the drag on growth from the change in inventories was revised higher. Other components remained mostly unchanged.”

“Meanwhile, the BEA released its first estimate of profits for Q1 with a decline of both profits before and after taxes. The share of profits into GDP declined from 11.4% to 11.1%.”

“In short: this report surprised on the upside with a bigger than expected revision in consumer spending and business investment. Yet, it hardly changes the picture as consumption still weakened substantially in Q1 while investment increased at a hefty pace, driven in part by a rebound in mining investment (structures). Looking forward, we expect growth to pick-up in the upcoming quarters with the usual post Q1 catch-up effect and as fundamentals remain solid. Consumption will remain the primary driver with no sign of deterioration in employment growth while wages are accelerating. However, the ongoing decline in the profit rate could cloud investment (and ultimately growth) prospects in the medium run. Meanwhile, the recent depreciation of the USD could alleviate downward pressures on growth coming from net exports.”