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Economy in Brief

U.S. GDP Revised Downward: Domestic Demand & Inventories Are Shaved
by Tom Moeller December 22, 2009

The second revision to 3Q U.S. real GDP lowered growth again, this time to 2.2% (AR) from last month's report of 2.9% growth. The revised figure compares to the advance report of 3.5% growth and was contrary to expectations for an improvement to 2.8%. Still, growth last quarter was the first positive figure since 4Q 2007. Estimates of economic growth this quarter recently have been rising to roughly 4.0%.

The largest surprise in the revision was that domestic final demand growth was again revised down, to 2.3% from 2.7%. On the fixed-investment side, business fixed investment fell at an increased 5.9% (-19.6% y/y) rate. The quarterly rise in residential spending was reduced to 18.9% (-18.9% y/y) and government investment grew at a reduced 2.7% rate (2.0% y/y). Real PCE growth was little changed at 2.8% (-0.2% y/y).

Another surprise in the figures was that the 3Q contribution to GDP growth from inventories was revised lower to 0.7 percentage points. Nevertheless, the 3Q addition followed subtractions of 1.4 and 2.4 percentage points during the prior two quarters, and was just the second positive contribution to GDP growth in two years.

Accompanying the GDP figure was a little-revised estimate that 3Q corporate profits rose 10.8% versus 2Q. That was the third consecutive quarterly increase and diminished the y/y change to -6.6% from -25.1% at its worst in 4Q' 08. Lower market interest rates lifted earnings in the financial sector by more than one-third (20.5% y/y) and they tripled from year-end '08. Earnings from the rest of the world increased 7.3% (-18.6% y/y) while the end of the recession raised domestic nonfinancial profits by an upwardly revised 4.2% (-10.6% y/y) for the second quarterly increase.

Deterioration in the foreign trade deficit subtracted an unrevised 0.8 percentage points from 3Q GDP growth following an advance estimate of a  0.5% subtraction. Imports grew 21.3% (-14.0% y/y) and the gain in exports also was little-revised at 17.8% (-10.7% y/y).

The gain in the GDP price deflator was lowered slightly to 0.4%. The PCE price index was ticked lower to 2.6% (-0.7% y/y) and the rise in the overall domestic final sales price index was brought down to 1.4% (-1.0% y/y).

The U.S. National Income & Product Account data are available in Haver's USECON and the USNA databases. 

Chained 2005$, % AR 3Q '09 Final 3Q '09 Preliminary 3Q '09 Advance 2Q '09 1Q '09 2Q Y/Y 2008 2007 2006
GDP 2.2 2.4 3.5 -0.7 -6.4 -2.6 0.4 2.1 2.7
  Inventory Effect 0.7 0.9 0.9 -1.4 -2.4 -0.9 -0.4 -0.4 0.1
Final Sales 1.5 1.9 2.6 0.7 -4.1 -1.7 0.8 2.5 2.6
  Foreign Trade Effect -0.8 -0.8 -0.5 1.7 2.6 0.8 -1.2 0.8 0.1
Domestic Final Demand 2.3 2.7 3.0 -0.9 -6.4 -2.5 -0.4 1.7 2.5
Chained GDP Price Index 0.4 0.5 0.8 -0.0 1.9 0.6 2.1 2.9 3.3
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