US 3Q GDP Revised Up, Hurricanes Slam Profits

December 1, 2005

By Tom Moeller

· US real GDP growth for 3Q was revised upward to 4.3% (AR) and surpassed  Consensus expectations for 4.1% growth.

· Operating corporate profits are estimated to have declined 3.4% (+16.5% y/y) and that reversed most of a 2Q rise. Financial sector earnings were hit hard by three hurricanes and fell 18.6% (+7.9% y/y). Profits of domestic nonfinancial corporations rose a slight 0.2% (20.2% y/y) after the 11.5% surge during 2Q while margins slipped.

· Domestic demand growth of 4.7% versus the initial report of a 4.1% rise was due to an upward revision to real PCE to 4.3% (3.9% y/y) growth.

· Strength in business fixed investment also was increased to 8.7% (8.4% y/y) and residential investment growth was doubled to 8.4% (7.5% y/y).

· Inventory accumulation continued to have a negative effect on GDP growth but was little revised at -0.4%.

· The foreign trade deficit subtracted rather than added to GDP growth since  imports grew 2.1% (5.1% y/y) rather than declining as initially estimated.

· The chain price index rose about as initially estimated.

 
Chained 2000$, % AR 3Q '05 (Revised) 3Q '05 (Advance) 2Q '05 Y/Y 2004

2003

2002
GDP 4.3% 3.8% 3.3% 3.7% 4.2%

2.7%

 1.6%
  Inventory Effect -0.4% -0.6% -2.1% -0.6% 0.3% 0.0% 0.4%
Final Sales 4.7% 4.4% 5.6% 4.3% 3.9% 2.7% 1.2%
  Foreign Trade Effect -0.3% 0.1% 1.1% 0.2% -0.5% -0.3% -0.6%
Domestic Final Demand 4.7% 4.1% 4.2% 4.2% 4.4% 3.0% 1.8%
Chained GDP Price Index 3.0% 3.1% 2.6% 2.9% 2.6% 2.0% 1.7%

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