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Economy in Brief

U.S. GDP Growth Revised Up; Corporate Profit Gain Is Modest
by Tom Moeller   November 23, 2010

Real GDP increased 2.5% (SAAR) last quarter which was slightly better than the advance report of a 2.0% rise. The gain roughly matched expectations for a 2.4% rise according to the Bloomberg survey. So far since the last recession GDP growth has averaged 2.9%, a figure that is less than half the average following other, severe, postwar recessions. 

Last quarter's gain in GDP was accompanied by another moderate rise in corporate profits, reported for the first time. The 2.8% rise (27.8% y/y) roughly matched the Q2 increase. Lower interest rates helped financial sector earnings to rise 10.0% (28.5% y/y). Only moderate economic growth and weak pricing power reduced the gain in nonfinancial sector earnings to 2.1% (40.2% y/y) but profits from the rest of the world fell 1.9% (+5.4% y/y). 

The improved GDP growth estimate reflected broad-based, but modest, upward revisions amongst categories. Personal consumption growth was notched up to a still-modest 2.9% while business investment remained the firmest at 10.3%. Government spending also was revised higher and the drop in residential investment was lessened to a still substantial 27.5% which more-than-reversed the Q2 increase.

Last quarter's contribution to GDP growth from a deeper foreign trade deficit was lessened to -1.8 percentage points as exports grew at a 6.3% annual rate (12.6% y/y) but imports rose at a 16.8% rate (16.1% y/y). Hardly revised was the 1.3 percentage point contribution to growth from faster accumulation of inventories.

Price inflation as measured by the chained GDP price index was held steady at 2.3% and the 1.2% yearly advance was near the lows of the early-1960s. The personal consumption chain price index rose an unchanged 1.0% (1.4% y/y). The price index for fixed business investment rose by 0.1% q/q (-1.1% y/y) and the residential investment price index fell marginally (+0.3% y/y) and that compares to a 3.4% decline during all of last year. The GDP figures are available in Haver's USECON and USNA databases and the expectations number is in MMSAMER. 

Disagreement at the FOMC: The Dissenting Votes Are Just Part of the Story from the Federal Reserve Bank of St. Louis can be found here.

Chained 2005 $, % AR Q3 '10 (Prelim) Q3 '10 (Adv) Q2 '10 Q1 '10 Q3 Y/Y 2009 2008 2007
GDP 2.5 2.0 1.7 3.7 3.2 -2.6 -0.0 1.9
   Inventory Effect 1.3 1.4 0.8 2.6 1.9 -0.5 -0.5 -0.3
 Final Sales 1.2 0.6 0.9 1.1 1.3 -2.1 0.5 2.2
   Foreign Trade Effect -1.8 -2.0 -3.5 -0.3 -0.9 1.0 -1.1 0.7
 Domestic Final Demand 2.9 2.5 4.3 1.3 2.2 -3.1 -0.6 1.5
Demand Components
  Personal Consumption 2.8 2.6 2.2 1.9 2.0 -1.2 -0.3 2.4
  Business Fixed Investment 10.3 9.8 17.2 7.8 8.3 -17.1 0.3 6.7
  Residential Investment -27.5 -29.1 25.6 -12.3 -5.6 -22.9 -24.0 -18.7
  Government Spending 4.0 3.3 3.9 -1.6 1.2 1.6 2.8 1.3
Prices
  Chained GDP Price Index 2.3 2.3 1.9 1.0 1.2 0.9 2.2 2.9
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