WASHINGTON (Reuters) - U.S. corporate profits rebounded sharply in the fourth quarter, but an uncertain economic outlook due to tariffs is creating a challenging environment for businesses in the first quarter.

Profits from current production increased $204.7 billion last quarter, the Commerce Department's Bureau of Economic Analysis (BEA) said on Thursday. Profits declined $15.0 billion in the July-September quarter.

President Donald Trump has announced a blizzard of tariff actions since taking office in January. Economists have warned that the manner in which the tariffs are being handled is not supportive of economic activity.

Business and consumer sentiment have sagged, which was reinforced by data on Wednesday from two regional Federal Reserve banks and Duke University that showed optimism among company chief financial officers dropped in the first quarter.

Fears of higher prices from import duties led to pre-emptive buying of goods in the fourth quarter, helping to boost consumer spending and keeping the economic expansion on track. Gross domestic product increased at an upwardly revised 2.4% annualized rate last quarter, the BEA said in its third estimate of fourth-quarter GDP. 

Growth was previously estimated to be a 2.3% pace. The economy grew at a 3.1% rate in the third quarter.     

The strength in profits helped an alternative measure of economic growth. Gross domestic income (GDI) grew at a 4.5% rate last quarter after rising at a 1.4% pace in the July-September quarter. 

In principle, GDP and GDI should be equal, but in practice they differ as they are estimated using different and largely independent source data. Annual benchmark revisions tend to close the gap between GDP and GDI.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 3.5% rate. Gross domestic output grew at a 2.2% pace in the third quarter.

There are signs that GDP growth has significantly slowed down in the first quarter because of snowstorms and unseasonably cold weather as well as trade policy uncertainty. 

Growth estimates for the January-March quarter are mostly below a 1.5% rate and the odds of a contraction are high. The Fed last week left interest rates unchanged, an acknowledgement of the uncertainty swirling around the economy.