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Economy in Brief

US 3Q GDP Revised Up, Corporate Profits Fell
by Tom Moeller November 30, 2004

US real GDP advanced 3.9% (AR) last quarter, up slightly from the advance report of growth at a 3.7% rate. The Consensus expectation had been for no change at 3.7%.

Corporate profits w/ inventory (IVA) and capital consumption adjustments (CCAdj) fell 2.4% (+8.4% y/y), the first quarterly decline since 1Q03. Part of this decline in "operating" profits occurred as the CCAdj for depreciation rose a sharp 6.3%, the largest quarterly advance in three years. However that was offset by a lessened (IVA).

"Book" profits before tax fell 2.4% (+9.5% y/y) due to lower profits earned in the financial sector, off 13.4% q/q and 10.5% y/y. Nonfinancial corporate sector profits rose 1.6% (18.9% y/y), though the quarterly rate of gain was the weakest since 1Q03 and reflected no expansion in profits per unit of output (margins).

Revisions to growth in domestic final demand were modestly positive. Personal consumption grew at a 5.1% (3.6% y/y) rate versus the initial report of 4.4% growth due to upward revisions in most categories. Business investment growth also was revised up to a 13.0% rate (10.1% y/y) with spending on equipment & software growth raised to 17.2% (12.8% y/y). Growth in information processing equipment & software was nearly doubled to 7.6% (13.6% y/y).

Residential investment grew at a 1.8% rate (8.1% y/y) but its contribution to real GDP growth was halved to 0.1 percentage points versus 0.9 points in 2Q04).

Slower accumulation of inventories subtracted nearly twice the 0.5 percentage points from GDP growth estimated in the advance report, but that was mostly offset by a lessened drag from foreign trade deterioration. Export growth was revised up to 6.4% (9.5% y/y) and import growth was eased to 6.0% (11.5% y/y).

Expanded detail indicated that GDP less motor vehicles rose 3.7% (AR, 4.1% y/y) and that GDP less computers rose 3.8% (3.9% y/y), both estimates up a hair from the advance report.

Price inflation was unrevised at 1.3%, as expected.

The Survey of Professional Forecasters from the Federal Reserve Bank of Philadelphia is available here.

Chained 2000$, % AR 3Q '04 (Preliminary 3Q '04 (Advance) 2Q '04 Y/Y 2003 2002 2001
GDP 3.9% 3.7% 3.3% 4.0% 3.0% 1.9% 0.8%
  Inventory Effect -0.9% -0.5% 0.8% 0.4% -0.1% 0.5% -0.8%
Final Sales 4.9% 4.2% 2.5% 3.6% 3.1% 1.4% 1.6%
  Trade Effect -0.3% -0.6% -1.0% -0.5% -0.3% -0.7% -0.2%
Domestic Final Demand 4.9% 4.6% 3.5% 4.1% 3.4% 2.1% 1.8%
Chained GDP Price Index 1.3% 1.3% 3.2% 2.2% 1.8% 1.7% 2.4%
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