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First-Quarter GDP Growth Dips to 1.9%; Corporate Profit Growth Slows

The U.S. economy grew at a disappointing 1.9 percent in the first quarter â€" slower than the initially calculated 2.2 percent annualized rate, the ""Bureau of Economic Analysis"":http://www.bea.gov/ reported Thursday. The BEA report was consistent with market expectations but emphasized a moribund economy. The economy had expanded at a 3.0 percent pace in the fourth quarter of 2011.

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As in the advance estimate of Gross Domestic Product reported last month, the drag on the economy came from a reduction in government spending, which was down $24.6 billion from the fourth quarter, offsetting increases in consumption spending and investments.

Thursday's BEA report was the second of three monthly reports on GDP following the end of the quarter, each based on updated data.

Domestic corporate profits, according to BEA and included in the GDP report, rose $26.9 billion in the first quarter, down from an increase of $58.3 billion in the fourth quarter.

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In dollar terms, GDP increased $62.0 billion in the first quarter, according to the revised report, down from the initial estimate of $73.4 billion. Personal consumption accounted for $63.5 billion of the increase â€" down from last month's estimate of $68.1 billion.

BEA also cited slower growth in inventory investment ""due to reduced inventory investment in manufacturing and wholesale industries"" and slower growth in fixed investment ""mainly due to slowdowns in industrial equipment, in computer and related equipment, and in power and communication structures.""

Residential fixed investment contributed $15.1 billion to the change in GDP, up from $14.9 billion in the advance GDP estimate and $9.1 billion in the fourth quarter. Overall, total residential fixed investment grew 19.4 percent in the first quarter, up from 11.6 percent in the fourth quarter. Non-residential fixed investment increased 4.9 percent in the first quarter â€" reversing the initially computed decline of 2.1 percent - after growing 5.2 percent in the fourth quarter.

Profits from domestic financial corporations improved $20.6 billion in the first quarter, according to BEA, down from growth of $29.9 billion in the fourth quarter. Non-financial corporate profits were up $6.3 billion in the first quarter, down from a growth of $28.4 billion in the fourth quarter. The drop in profits at non-financial corporate profits means financial corporations accounted for 76.6 percent of all profits in the first quarter, up from 51.3 percent in the fourth quarter.

The overall profit decline though offers an explanation for the slowdown in payroll job growth.

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.
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