Q1 U.S. GDP Remains Unchanged at 1.9%

New data released Thursday by the Commerce Department confirmed U.S. first-quarter gross domestic product at 1.9 percent year-over-year growth. This also confirmed economists' expectations of 1.9 percent GDP growth, and it was lower than the 3.0 percent rate seen in the fourth quarter of 2011.

Slowing consumer spending and export growth hurt the economy last quarter. Consumer spending, which accounts for about 70 percent of U.S. economic activity, increased at a 2.5 percent rate in first quarter, rather than the previously reported 2.7 percent pace. Exports grew 4.2 percent, as compared to previous estimates of 7.2 percent.

There was some good news in the report. Measured from incomes rather than from spending, the economy grew in the first quarter at a 3.1 percent annual rate, higher than the 2.6 percent growth rate in the fourth quarter of 2011. Inventory growth also slowed, hinting that further production may be needed in the future. Inventories grew 0.1 percent in the first quarter, as compared to 0.21 percent in the fourth quarter of 2011, and the economy grew at a 1.8 percent rate excluding inventories, better than the prior estimate of 1.7 percent and higher than the fourth quarter's 1.1 percent reading.

While the inventory data may bode well for second-quarter growth, the consumption numbers reflect deteriorating retail sales data from April and May, as well as weakening employment data. Next Friday, the Bureau of Labor Statistics is expected to report that the U.S. economy added 95,000 jobs in June, higher than the reading of May and June but well below the rate of employment growth seen earlier this year. In January, the U.S. economy added 275,000 jobs. Further reluctance of consumers to spend will hurt retailers, except for discount retailers such as Walmart WMT.

Business spending on equipment and software was revised down to a 3.5 percent growth rate, instead of the previously reported 3.9 percent. Continued weakness in this section of the GDP report is expected, after the Durable Goods report on Wednesday showed that this measure only grew 0.4 percent in May and contracted 1.5 percent in April. As businesses slow spending, it will be a further drag on GDP growth. Weakness in equipment spending will hurt technological components makers such as Cisco Systems CSCO and Juniper Networks JNPR.

Import growth was revised down 3.4 percentage points to 2.7 percent growth, showing further reluctance of consumers to spend in the quarter. Government spending also rwas evised lower to show a contraction of 4.0 percent instead of the initial estimate of 3.9 percent contraction. The Commerce Department also revised aftertax corporate profits to a 5.7 percent rate of decline instead of 4.1 percent. This decline reflected the expiration of corporate tax credits given for accelerated depreciation of assets, so it may be skewed lower.