Will First Quarter U.S. GDP Be Less Than Expected?

A number of economists were looking for fourth quarter 2004 U.S. GDP to be revised upward to a 4% annual rate. But when the U.S. Commerce Department reported its third and final read of economic activity for last year's final quarter on March 30, the figure was the same it reported about a month ago: 3.8%. Small upward revisions in exports and consumer spending for manufactured durable goods were offset by a downward revision in inventories.

Does this mean that economists expecting first quarter GDP to come in at 4% or higher are forecasting too high? It could be, but Commerce's first read of first quarter economic activity won't be published until April 28.

On March 30, the Commerce Department also reported that corporate profits from current production increased 15.7% in 2004, just over a percentage point lower than 2003's 16.8% increase. Corporate profits before tax increased 12.7% in 2004, compared with a 15.4% increase in 2003. "In 2004, the difference between the increase in profits from current production and the increase in profits before tax was mainly due to the effects of the Job Creation and Worker Assistance Act of 2002 and the Jobs and Growth Tax Relief Reconciliation Act of 2003, which allowed accelerated depreciation and lowered before-tax profits," the department explained. A special 50% accelerated depreciation provision expired at the end of 2004.

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