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Economy in Brief

U.S. GDP Growth Boosted By More Inventory Accumulation
by Tom Moeller  December 5, 2013

A rising level of inventories accompanied by modest final demand was the theme of last quarter's improved economic growth. Real GDP growth for Q3'13 was revised up to 3.6% (1.8% y/y) from 2.8%. Growth was the firmest since Q1'12 and outpaced consensus expectations for a 3.1% rise in the Action Economics survey.

After tax corporate profits, released for the first time, increased 2.8% (5.8% y/y). Before-tax earnings gained 1.8% (5.6% y/y), the increase driven by a 4.1% rise (1.8% y/y) in foreign sector earnings. Financial sector profits grew 1.9% (3.0% y/y) while nonfinancial sector earnings rose 1.1% (8.1% y/y). 

A faster rate of inventory accumulation continued to drive GDP growth last quarter. Inventories added 1.7 percentage points to the Q3 GDP increase, double the initial estimate. During the last year, however, inventories added a nominal 0.2 percentage points to GDP growth. Foreign trade deficit improvement also helped growth but by a lessened 0.1 percentage point. It was the result of a 3.7% rise (2.8% y/y) in exports which outpaced a 2.7% gain (1.7% y/y) in imports.

Domestic final sales rose at a 1.8% rate but the y/y rise of 1.4% was the weakest since Q1'10. A 1.4% gain (1.8% y/y) in personal consumption expenditures was its weakest since late-2009. Zero growth (0.8% y/y) in spending on services accounted for the slowdown. That was accompanied by a quicker 7.7% (7.5% y/y) increase in spending on durable goods. Nondurable goods spending rose at a 2.4% rate (1.8% y/y).

Business fixed investment increased at a quickened 3.5% rate and roughly equaled growth during the last year. Spending on nonresidential structures surged at a 13.7% rate (4.0% y/y) but equipment investment was unchanged (3.4% y/y). Growth in residential investment remained near its peak at 13.0% (14.8% y/y).

In the government sector, a 0.4% advance (-2.7% y/y) remained the first positive posting in a year. It reflected a 1.7% rise (-0.1% y/y) in state & local outlays offset by a 1.4% decline (-6.5% y/y) in federal spending. Nondefense federal spending fell at a 3.1% rate (-2.2% y/y) which roughly equaled the declines of the prior two quarters. Defense spending slipped at a 0.3% rate (-8.9% y/y).

The GDP price index rose at a little-changed 2.0% rate (1.3% y/y), the quickest quarterly growth in a year. Consumer prices increased at a 2.0% rate (1.1% y/y) while prices excluding food & energy rose at a 1.5% rate (1.2% y/y). The residential investment price index rose at a 3.2% rate (4.7% y/y) while the business fixed investment price index increased at a 1.0% pace (1.1% y/y).

The latest GDP figures can be found in Haver's USECON and USNA databases; USNA contains basically all of the Bureau of Economic Analysis' detail in the national accounts, including the new integrated economics accounts and the recently added GDP data for U.S. Territories. The Action Economics consensus estimates can be found in AS1REPNA.

When Might the Federal Funds Rate Lift Off? from the Federal Reserve Bank of Cleveland is available here.

Chained 2009 $, %, AR Q3'13 (2nd Estimate) Q3'13 (Advance) Q2'13 Q1'13 Q3 Y/Y 2012 2011 2010
Gross Domestic Product 3.6 2.8 2.5 1.1 1.8 2.8 1.8 2.5
 Inventory Effect 1.7 0.8 0.4 0.9 0.2 0.2 -0.2 1.5
Final Sales 1.9 2.0 2.1 0.2 1.6 2.6 2.0 1.0
 Foreign Trade Effect 0.1 0.3 -0.1 -0.3 0.2 0.2 0.2 -0.5
Domestic Final Sales 1.8 1.7 2.1 0.5 1.4 2.4 1.8 1.5
Demand Components
Personal Consumption 1.4 1.5 1.8 2.3 1.8 2.2 2.5 2.0
Business Fixed Investment 3.5 1.6 4.7 -4.6 3.2 7.3 7.6 2.5
Residential Investment 13.0 14.6 14.2 12.5 14.8 12.9 0.5 -2.5
Government Spending 0.4 0.2 -0.4 -4.2 -2.7 -1.0 -3.2 0.1
Chain-Type Price Index
GDP      2.0 1.9 0.6 1.3 1.3 1.7 2.0 1.2
Personal Consumption 2.0 1.9 -0.1 1.1 1.1 1.8 2.4 1.7
 Less Food/Energy 1.5 1.4 0.6 1.4 1.2 1.8 1.4 1.3
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