Highlights

• Real GDP growth in Q1 was revised lower to a -0.5% annualized rate, down from the previous estimate and consensus expectation of -0.2%.
• Downward revisions to consumer spending and inventories more than offset an upward revision to net exports.
• The largest positive contributions to the real GDP growth rate in Q1 were inventories and business investment. The weakest component by far was net exports.
• The GDP price index was revised slightly higher to a 3.8% annual growth rate. Nominal GDP growth—real GDP plus inflation—was revised lower to a 3.2% annualized rate.

Sources: U.S. Bureau of Economic Analysis, Haver Analytics, First Trust

Sources: Bureau of Economic Analysis, Haver Analytics, First Trust

Implications

Set aside the GDP number for a moment.

The most important part of the June 26 release was economy-wide corporate profits, which fell 2.3% in the first quarter from the previous quarter but remained 6.3% higher than a year ago.

Profits from domestic nonfinancial industries declined by 2.5%, while profits from domestic financial firms grew 2.3%. Profits from the rest of the world fell by 7.3% for the quarter. Financial industry data include the Federal Reserve (either profits or losses). Because the Fed pays private banks interest on reserves, and has raised interest rates, it has been generating unprecedented losses in recent quarters.

Excluding the losses at the Fed (because we want to accurately count profits in the private sector), overall corporate profits were down 2.7% in the first quarter but up 4.4% from a year ago. However, plugging in non-Fed profits into our Capitalized Profits Model suggests stocks remain overvalued.

We also got revisions to Q1 real gross domestic income (GDI), an alternative measure of economic activity. Real GDI was revised higher to a 0.2% annual rate in Q1 and is up 2.2% from a year ago. GDP inflation was revised slightly higher to a 3.8% annual rate in Q1 and is up 2.6% over the past year, both still higher than the Fed’s 2.0% target. Meanwhile, nominal GDP (real growth plus inflation) increased at a 3.2% annual rate in Q1 and is up 4.7% year over year.

Sources: Bureau of Economic Analysis, First Trust

Editor’s note: Brian Wesbury is chief economist at First Trust Advisors LP. He and his team prepare a weekly market commentary titled “Monday Morning Outlook,” as well as frequent research reports and the recurring feature “Three on Thursday.” Proactive Advisor Magazine thanks First Trust for permission to republish an edited version of these commentaries, which were first published on June 26, 2025.

This report was prepared by First Trust Advisors LP and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

The opinions expressed in this article are those of the author and the sources cited and do not necessarily represent the views of Proactive Advisor Magazine. This material is presented for educational purposes only.