·
U.S. real GDP growth for 3Q '06 was revised up to 2.2% (AR) from the
advance estimate of just 1.6% growth. The revision exceeded Consensus estimates
for a 1.8% increase. However, the rise in GDP last quarter still was the
second slowest quarterly growth rate since 1Q 2003 and represented
slowdown from 3.5% growth during the prior four quarters.
· Despite slower growth in activity, corporate profitability rose a firm 4.2% (30.9% y/y) last quarter. (The comparison versus last year is exaggerated by the losses suffered due to Hurricane Katrina.) Nonfinancial corporate profits increased 8.2% (25.8% y/y) last quarter, a solid rebound from the 3.6% decline during 2Q. To the downside, however, were profits earned by US financial corporations which fell 0.5% (+62.7% y/y) and by foreign entities which fell 1.2% (+6.1% y/y).
· The upward revision to GDP growth mostly reflected reduced deterioration in the net export deficit to a 0.2 percentage point subtraction. Export growth was little changed at 6.3% (9.0% y/y) but the gain in imports was reduced to 5.3% (7.2% y/y).
· Inventory accumulation also added 0.2 percentage points to GDP rather than subtracting slightly, as initially estimated.
· Residential investment was notably weak last quarter and fell a little revised 18.0% (AR, -7.9% y/y). It was the fourth consecutive decline, the largest since 1991 and sapped 1.2 percentage points from GDP growth last quarter. That subtraction was the largest by housing since 1981.
· Growth in personal consumption was reduced slightly to 2.9% (2.7% y/y) but nonresidential fixed investment growth was increased to 10.0% (8.3% y/y). That was enough to leave the growth in final sales to domestic purchasers about unchanged at 2.1%.
· Government expenditures were raised slightly to 2.2% (1.7% y/y) growth though the Federal government's spending on defense fell a deepened 1.1% (-1.2% y/y), the third decline in the last four quarters.
· The GDP chain price index was unchanged at 1.8%, its weakest quarterly advance in over three years. The PCE chain price index grew 2.4% (2.8% y/y) which was slightly less than estimated earlier. Less food & energy the PCE chain price index grew 2.2% (2.4% y/y), a slowdown from a 2.7% rise during 2Q. The price index for residential investment fell 0.3% (+3.2% y/y), the first decline since early 2002.
· Historic Imbalances and Great Debates: Do The Economists See It Coming? from the Federal Reserve Bank of Boston is available here.