US economic growth, corporate profits revised higher in 2023 By Reuters

By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. economy grew faster than initially thought in 2023 on the back of improved business investment and consumer spending, despite significant interest rate hikes by the Federal Reserve, revised government data showed on Thursday.

The annual benchmark review from the Commerce Department’s Bureau of Economic Analysis (BEA), the government agency that compiles the gross domestic product report, also showed a sharp upward revision in corporate profits last year. Revisions to inflation were minor, while the savings rate was raised.

“The overall picture of the economy remains unchanged,” Dave Wasshausen, associate director of National Economic Accounts at the BEA, told reporters.

Gross domestic product grew by 2.9% last year, revised upwards from the previously estimated 2.5%. An update on residential investment, which includes house building, also accounted for the revision. Growth in 2022 was raised by 0.6 percentage points to 2.5%, with upward revisions to consumer spending and business investment the main drivers.

The US central bank has raised interest rates by 525 basis points in 2022 and 2023. The Fed last week cut its benchmark overnight interest rate by 50 basis points to a range of 4.75%-5.00%, the first cut in borrowing costs since 2020.

BEA revised national accounts data from the first quarter of 2019 to the first quarter of 2024 to include newly available and more comprehensive source data as well as improved estimation methodologies. First quarter GDP data for 2024 will be released along with the third estimate of second quarter GDP on Thursday morning.

Growth was also revised up considerably higher in the first quarters of 2022 and 2023, which could amplify economists’ concerns that difficulties adjusting the data for seasonality are impacting first-quarter growth estimates.

So-called residual seasonality was previously a major problem with first-quarter GDP data, when it tended to understate initial growth estimates, before the government fixed the problem in 2018. However, Wasshausen said the BEA performed a rigorous test and found no residual seasonality in the current data, noting that revisions were not in the same category.

“If it was just this persistent category that showed upward revisions in the first quarter year over year, that would certainly get our attention,” Wasshausen said. “We continue to ensure that there is no residual seasonality in the GDP and GDI numbers. ”

Corporate profits were sharply revised upward by $288.5 billion, or 8.9 percent, in 2023. Companies enjoyed more pricing power amid rising inflation.

This, along with the improvement in net interest, due to higher interest rates, and owner income, reduced the impact of the reduction in wages and salaries on income. This is in line with a recent government estimate of a major downward revision to job growth in the 12 months to March this year.

Measured in terms of income, the economy grew by 1.7 percent last year, revised upward from a previously estimated 0.4 percent.

Gross domestic income (GDI) grew by 2.8% in 2022, rather than 2.1% as previously reported. In principle, GDP and GDI should be equal, but in practice they differ because they are estimated using data from different and largely independent sources.

The upward revisions narrowed the GDP-to-GDP gap, also known as the statistical discrepancy, to 0.9 percent of GDP last year from a previously estimated 1.9 percent.

Some economists have focused on the statistical discrepancy to argue that GDP overstates the health of the economy. Not everyone agrees, however. Most economists say that the average of GDP and GDP gives a better picture of growth.

The average of GDP and GDP, also known as gross domestic product, grew by 2.3% in 2023. This was an upward revision from the 1.5% previously estimated. Gross domestic product grew at an average annual rate of 2.3% from 2018 to 2023, revised upwards from 1.9% previously reported.

The saving rate in 2023 was revised to 4.7% from a previous estimate of 4.5%. It came under scrutiny as economists try to gauge how long solid growth in consumer spending can last. There have been modest downward changes in the saving rate over the past four years.

The savings rate rose to 15.3% in 2020 as restrictions from the COVID-19 pandemic kept Americans at home.