Corporate profits in the US have unexpectedly contracted in the first quarter of 2011 to record their first decline in more than two years and the economy grew at the same pace, 1.8%, as previously estimated, a US government report showed today.
After-tax corporate profits fell at a rate of 0.9%, the US Commerce Department said, after rising at a 3.3% rate in the fourth quarter of last year.
The drop in profits, the first since the fourth quarter of 2008, likely reflected a slowdown in productivity growth as businesses stepped up hiring.
Economists had expected corporate profits to grow at a 2.3% pace.
Gross domestic product growth was unrevised at annual rate of 1.8%, the department said in its second estimate, below economists' expectations of 2.1%.
Indications are that the sluggish growth persisted early in the second quarter, with retail sales lacklustre and supply chain disruptions from the earthquake in Japan depressing motor vehicle production.
The economy expanded at a 3.1% rate in the fourth quarter of last year.
Though overall GDP was unrevised, the report showed a bigger increase in restocking by businesses and slightly higher capital outlays, which helped to offset downward revisions to consumer spending.
Business inventories increased $52.2 billion, well above the initially reported $43.8 billion rise.
The change in inventories added 1.19 percentage points to GDP growth.
But a decline in vehicle production so far in this quarter, because of shortages of parts from Japan, could cause a drawdown in inventories and weigh on growth in the April-June period.
Motor vehicle output added 1.28 percentage points to first-quarter GDP.
Business investment rose 3.4% instead of 1.8% as the drop in spending on non-residential structures was not as steep as previously estimated.
Business spending grew 7.7% in the fourth quarter.
Consumer spending - which accounts for more than two-thirds of US economic activity - expanded at a much slower 2.2% rate in the first three months of this year, instead of 2.7%.
After rising 4% in the fourth quarter, spending was dampened by high food and gasoline prices, which sent inflation rising at its fastest pace in two and a half years.
The personal consumption expenditures index rose at an unrevised 3.8% rate in the first quarter.
That compared to the fourth quarter's 1.7% increase.
The core PCE index closely watched by the Fed advanced at a 1.4% rate rather than 1.5%.
While exports were much stronger than previously estimated, imports also accelerated, resulting in trade having a muted impact on growth.
Government spending contracted by 5.1% rather than 5.2%, with defence outlays dropping at an unrevised 11.7% rate.
