1Q GDP Revised Up to 0.7%

Washington, DC, June 28, 2007—Gross domestic product expanded at an annual pace of 0.7 percent in the first quarter, compared with the 0.6 percent rate estimated last month, according to a Commerce Department released Thursday.

The revised growth rated was the slowest in four years. The gauge of inflation watched by the Federal Reserve was unexpectedly revised up.

Last quarter was probably the low point for growth as the trade deficit narrows and businesses boost

Economists were expecting first quarter growth of 0.8 percent.

The Fed's preferred inflation measure, which is tied to consumer spending and strips out food and energy costs, rose at a 2.4 percent annual rate, faster than the 2.2 percent previously estimated. The new estimate reflected higher costs for medical services.

The revision issued today by the Commerce Department mainly reflected a narrower trade deficit than previously estimated.

The trade gap last quarter was $606.2 billion at an annual pace, compared with $611.8 billion estimated last month. Trade subtracted 0.8 percentage point from growth, rather than the 1 percentage point estimated last month.

Companies reduced inventories at a $4.2 billion annual pace last quarter, compared with previous estimates of a $4.5 billion reduction.

Spending on residential construction projects fell at a 15.8 percent annual pace last quarter, after contracting at a 19.8 percent pace in the fourth quarter. The drop subtracted 0.9 percentage point from growth.

The report also included a revision to corporate profits for the quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, rose 1.4 percent. For all of last year, profits were up 21 percent.