US 1st Quarter GDP Revised Slightly Higher on Stronger Investment

Core inflation, a gauge that removes food and energy prices, was adjusted a bit lower in the second estimate.

A person walks down a street with shopping bags in New York on Nov. 29, 2024. David Dee Delgado/Getty Images

The U.S. economy contracted slightly less than initially reported in the first quarter, reflecting an adjustment to investment and consumer spending.

According to the second estimate from the Bureau of Economic Analysis on May 29, the first-quarter gross domestic product (GDP) growth rate was negative 0.2 percent, up from the initial reading of negative 0.3 percent.

The GDP adjustment resulted from an upward revision to gross domestic private investment, which includes spending on capital goods, new home construction, and changes in private inventories. Monetary policymakers and market watchers pay close attention to this statistic as it can reflect the underlying health of the U.S. economy.

In addition, consumer spending was adjusted lower, to 1.2 percent from 1.8 percent.

The second estimate observed minuscule revisions to exports, imports, and government spending.

On the inflation front, personal consumption expenditure (PCE) price inflation for the January–March period was unchanged from the initial estimate of 3.6 percent. Core PCE inflation, which removes the volatile energy and food prices, was adjusted slightly lower, to 3.4 percent from 3.5 percent.

Backward and Forward

The second GDP estimate is backward-looking, as a lot has transpired since the end of the first quarter, particularly on the trade front.

The April 2 tariffs announcement, which imposed universal baseline and reciprocal tariffs on countries worldwide, upended international trade flows and forced U.S. importers to accelerate their purchases of foreign goods.

Since then, the White House paused tariffs to allow for trade negotiations. So far, the Trump administration has secured a trade agreement with the UK and reached a 90-day tariff cease-fire with the Chinese regime.

President Donald Trump also threatened to implement a 50 percent levy on the European Union on June 1 but pushed back the deadline to July 9.

The president and other senior administration officials say that new deals could be announced soon, providing relief to businesses, consumers, and the financial markets.

U.S. stocks have rebounded over the past month, and The Conference Board’s Consumer Confidence Index surged in May.

Economic growth prospects also appear to be recovering in the current quarter.

The Atlanta Federal Reserve Bank’s GDPNow model estimates suggest that the U.S. economy will grow by 2.2 percent in the second quarter. Likewise, the New York Fed Staff Nowcast signals a 2.4 percent expansion for the three-month period.

Despite the solid performance expected in the April–June quarter, a recent Philadelphia Fed survey of forecasters says the “outlook for the U.S. economy looks dimmer now than it did three months ago.”

According to the report, released on May 16, the real GDP growth rate is expected to be 1.4 percent this year, down from the previous forecast of 2.4 percent. The unemployment rate is also projected to climb to 4.5 percent by early next year, from the current rate of 4.2 percent. They also anticipate that the headline annual inflation rate will reach 3.2 percent by the year’s end.

Economists at Oxford Economics suggest that without lasting and permanent trade agreements, it may be challenging to make substantial upward adjustments to their growth outlook.

Treasury Secretary Scott Bessent (R) and Trade Representative Jamieson Greer hold a news conference in Geneva on May 12, 2025. Fabrice Coffrini/AFP via Getty Images

“While we intend to nudge up our U.S., China, and world GDP forecasts for 2025 and 2026 in our second release on May 21, growth is likely to remain weaker than anticipated prior to the ‘liberation day’ tariff announcements,” they said in a recent research note.

A recent court decision to block the president’s tariffs added another factor to economic modeling.

PCE Inflation Is Next

Inflation will be the last major economic report for the week.

The April personal consumption expenditure (PCE) price index—the Federal Reserve’s preferred inflation gauge, as it accounts for changes in consumer spending and includes a broader coverage—is expected to slow for the second consecutive month.

According to the Cleveland Fed’s Inflation Nowcasting model, headline annual PCE inflation is expected to come in at 2.2 percent, down from 2.3 percent in March. Core PCE inflation, which omits the volatile food and energy categories, is projected to be flat at 2.6 percent.

Despite the sharp drop in inflation measures, Torsten Slok, the chief economist at Apollo, said inflation is picking up again.

“Inflation has for several years been moving down toward the Fed’s 2 [percent] inflation target. But the consensus now expects inflation to rise over the coming quarters, driven by tariffs and by upward pressure on housing inflation,” he said in a note emailed to The Epoch Times.

Looking ahead to the May consumer price index report, the Cleveland Fed estimates the headline annual inflation rate will rise to 2.4 percent from 2.3 percent in April.