US Inflation Data Projected To Surge

June 1, 2016

The US economic growth has been sluggish in the first quarter, although not as strongly as initially expected, amid an increase in spending on home architecture and a constant increase in inventory investment by business.

Gross domestic product in the United States climbed at a 0.8 percent annual rate compared to the 0.5 percent rate reported in the previous month, the Commerce Department stated in its second GDP estimate on Friday. It registered the weakest performance since the first quarter of last year.

The upward revision to the first quarter gross domestic product growth estimate also mirrored a smaller drag from trade than previously reported. In addition, the government reported a rebound in after-tax corporate earnings, which has been boosted at a 0.6 percent rate in the first quarter after plummeting at 8.4 percent pace during the fourth quarter.

On the other hand, the US economy grew at a 2.2 percent rate after growing 1.9 percent in the fourth quarter when measured from the income side.

The world’s largest economy has been rattled by a strong dollar and sluggish global demand, which have deteriorated export growth. Furthermore, it has been weighed down by lower oil prices, which have undermined the earnings of oilfield companies such as Schlumberger and Halliburton, forcing them to cut spending on equipment.

Market analysts also believe that the model applied by the government to strip out seasonal patterns from data is not entirely reaching its goal despite measures last year to resolve the issue.

Residual seasonality has troubled first quarter GDP data, with growth underperforming in five of the past six years since the economic recovery started in mid-2009.

There are some indications that the economy regained momentum at the beginning of the second quarter – with retail sales, goods exports, industrial production, housing starts and home sales soaring in the previous month.

Meanwhile, the Atlanta Federal Reserve is currently expecting a 2.9 percent increase in second quarter gross domestic product. However, including the consistent high level of inventories suggests a downside risk to this outlook.

Previously, economists had anticipated that first quarter GDP growth would be revised up to 0.9 percent. The US economy rose 1.4 percent during the fourth quarter.

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