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Economy in Brief

U.S. GDP Growth Revised Up; Corporate Profits Lowered
by Tom Moeller   December 22, 2010

Real GDP increased 2.6% (SAAR) last quarter which was roughly equal to the preliminary report of a 2.5% rise issued last month. The gain matched expectations for a 2.6% rise by MMS International. 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. 

The improved GDP growth estimate reflected an upward revision to inventory accumulation. It now is estimated to have contributed 1.6 percentage points to GDP. In addition, the drag from a deepened foreign trade deficit was lessened to 1.7 percentage points. Exports grew at an increased 6.7% annual rate (12.7% y/y) and imports grew at an unchanged 16.8% rate (16.1% y/y).

Personal consumption growth was lowered to a modest 2.4% while business investment growth was lessened to 10.0% after a 17.2% Q2 jump. The drop in residential investment was lessened to a still substantial 27.3% which more-than-reversed the Q2 increase. Finally, government spending rose a little-revised 3.9%.

Last quarter's gain in corporate profits was lessened moderately to a weak 1.6% (26.4% y/y). Lower interest rates helped push up financial sector earnings by an improved 10.4% (28.9% y/y). On the other hand, moderate economic growth and weak pricing power reduced nonfinancial sector earnings. They were revised down to no-change from Q2 (37.4% y/y). Profits from the rest of the world fell a slightly deepened 2.3% (+5.0% y/y)

Price inflation as measured by the chained GDP price index was lessened to 2.1% and the 1.2% yearly advance was near the lows of the early-1960s. The personal consumption chain price index rose a lessened 0.8% (1.4% y/y). The price index for fixed business investment rose by 0.2% q/q (-1.0% y/y) and the residential investment price index fell marginally (+0.4% y/y). 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.

Yield Curve and Predicted GDP Growth from the Federal Reserve Bank of Cleveland can be found here.

Chained 2005 $, % AR Q3'10 (Final) Q3'10 (Prelim.) Q3'10 (Adv.) Q2'10 Q1'10 Q3 Y/Y 2009 2008 2007
GDP 2.6 2.5 2.0 1.7 3.7 3.2 -2.6 -0.0 1.9
Inventory Effect 1.6 1.3 1.4 0.8 2.6 1.9 -0.5 -0.5 -0.3
Final Sales 0.9 1.2 0.6 0.9 1.1 1.2 -2.1 0.5 2.2
Foreign Trade Effect -1.7 -1.8 -2.0 -3.5 -0.3 -0.9 1.0 -1.1 0.7
Domestic Final Demand 2.6 2.9 2.5 4.3 1.3 2.1 -3.1 -0.6 1.5
Demand Components
Personal Consumption 2.4 2.8 2.6 2.2 1.9 1.8 -1.2 -0.3 2.4
Business Fixed Investment 10.0 10.3 9.8 17.2 7.8 8.2 -17.1 0.3 6.7
Residential Investment -27.3 -27.5 -29.1 25.6 -12.3 -5.6 -22.9 -24.0 -18.7
Government Spending 3.9 4.0 3.3 3.9 -1.6 1.2 1.6 2.8 1.3
Prices
Chained GDP Price Index 2.1 2.3 2.3 1.9 1.0 1.2 0.9 2.2 2.9
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