U.S. GDP Weak, 'No Doubt The Economy Has Slowed'

05/26/2011 11:09 am ET | Updated Jul 26, 2011

WASHINGTON: Corporate profits contracted in the first quarter for the first time in more than two years and the economy grew at the same pedestrian pace as previously estimated, government data showed on Thursday.

Signs of the economy's struggle to regain speed were highlighted by an unexpected rise in the number of Americans applying for unemployment benefits last week.

"There is no doubt the economy has slowed. We will call the first half of 2011 as a soft patch," said Robert Dye, a senior economist at PNC Financial Services in Pittsburgh. "We should see growth accelerate in the second half in the 3.0 percent to 3.5 percent area."

After-tax corporate profits fell at a rate of 0.9 percent, the Commerce Department said, after rising at a 3.3 percent pace in the fourth quarter.

In its second estimate of the economy, the department said gross domestic product growth was unrevised at annual rate of 1.8 percent, below economists' expectations for a 2.1 percent pace.

The drop in profits, the first since the fourth quarter of 2008, likely reflected a slowdown in productivity growth as businesses stepped up hiring. Economists had expected corporate profits to grow at a 2.3 percent pace.

However, the rise in initial claims last week suggested the pace of hiring might be slowing. Initial claims for state unemployment benefits climbed to 424,000 from 414,000 the prior week, a separate report from the Labor
Department showed.

Economists had forecast claims slipping to 400,000. Last week marked the seventh straight week in which claims topped the 400,000 level.

Stock index futures remained unchanged while bond prices shed losses and turned positive. The dollar extended losses versus yen.

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