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Economy in Brief

U.S. GDP Growth in Q3 Is Revised Higher; Profits Growth Slows
by Tom Moeller  November 25, 2014

GDP grew 3.9% last quarter (2.4% y/y), revised up from the advance estimate of 3.5% growth. The gain exceeded expectations for a 3.3% advance in the Action Economics Forecast Survey. So far this year economic growth averaged 2.1%, little changed from the prior two years.

Corporate profits after tax increased 1.7% (3.8% y/y), down from 6.2% in Q2. So far this year profits have risen at a 6.5% annual rate after a 4.7% gain last year. Financial sector earnings grew 4.5% (-7.4% y/y) and nonfinancial sector earnings rose 1.8% (5.0% y/y). Profits earned from the rest of the world gained nudged 0.3% higher (-3.6% y/y).

The GDP revision reflected a strengthened effect from inventory accumulation, now shown as reducing growth by 0.1 percentage point rather than 0.6 points in the advance release. This was offset, however, by a 0.8 percentage point addition to growth from foreign trade, revised down from 1.3 percentage points. Export growth was lowered to 4.9% (3.8% y/y) from 7.8%, and imports slipped 0.7% (+3.4% y/y) rather than by 1.7%.

Growth in domestic final demand was raised to 3.2% (2.5% y/y) from 2.7%. Consumer spending grew 2.2% (2.4% y/y). Durable goods spending growth was raised to 8.7% (7.8% y/y) as motor vehicles purchases improved 10.5% (10.0% y/y). Growth was, nevertheless, half what it was in Q2. Furniture & home furnishings spending growth was nearly doubled to 6.0% (5.9% y/y) but, again, that was roughly half the Q2 increase. Purchases of nondurable goods also was doubled to 2.2% (1.8% y/y) as apparel spending slowed to an unrevised 0.9% rate (1.3% y/y). Food & beverage purchases were raised, however, to no change (0.0% y/y) from -1.1%. Gasoline purchases were off 0.4% (-0.4% y/y), not 2.3%. Services spending growth rose an unchanged 1.1% (1.8% y/y), the gain held back by a 3.2% decline (-1.5% y/y) in spending on recreation.

Business investment growth also was strengthened to 7.1% (7.2% y/y). Spending on equipment grew an increased 10.8% (8.6% y/y) led by a one-third rise (17.5% y/y) in transportation equipment. That was offset by a 7.5% decline (+0.9% y/y) in information processing. Investment in intellectual property products gained 6.4% (5.0% y/y). Structures investment rose 6.4% (5.0% y/y). Residential investment advanced 2.7% (-0.8% y/y). Government spending purchases improved at a 4.2% rate (0.3% y/y), the quickest growth since Q2'09. Defense spending firmed at an unrevised 15.9% rate (-0.1% y/y), nondefense grew 0.4% (-1.5% y/y) and state & local buying rose a lessened 0.8% (0.9% y/y).

The GDP price index increased at a little-changed 1.4% annual rate (1.6% y/y). The personal consumption index slowed to 1.3% (1.5% y/y) as durable goods prices fell 2.0% (-2.3% y/y). The service price index rose 1.8% (2.3% y/y), the weakest gain in two years. The nonresidential investment price index rose at a steady 1.0% rate (1.2% y/y) but the residential index jumped 6.6% (5.8% 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 integrated economic accounts and the recently added GDP data for U.S. Territories. The Action Economics consensus estimates can be found in AS1REPNA.

Chained 2009 $, %, AR Q3'14 (2nd Estimate) Q3'14 (Advance Estimate) Q2'14 Q1'14 Q3 Y/Y 2013 2012 2011
Gross Domestic Product 3.9 3.5 4.6 -2.1 2.4 2.2 2.3 1.6
  Inventory Effect -0.1 -0.6 1.4 -1.2 -0.1 0.0 0.1 -0.1
Final Sales 4.1 4.2 3.2 -1.0 2.5 2.2 2.2 1.7
  Foreign Trade Effect 0.8 1.3 -0.3 -1.7 0.0 0.3 0.1 0.0
Domestic Final Sales 3.2 2.7 3.4 0.7 2.5 1.9 2.1 1.7
Demand Components
Personal Consumption Expenditures 2.2 1.8 2.5 1.2 2.4 2.4 1.8 2.3
Business Fixed Investment 7.1 5.5 9.7 1.6 7.2 3.0 7.2 7.7
Residential Investment 2.7 1.9 8.8 -5.3 -0.8 11.9 13.5 0.5
Government Spending 4.2 4.6 1.7 -0.8 0.3 -2.0 -1.4 -3.0
Chain-Type Price Index
GDP      1.4 1.3 2.1 1.3 1.6 1.5 1.8 2.1
Personal Consumption Expenditures 1.3 1.2 2.3 1.4 1.5 1.2 1.8 2.5
 Less Food/Energy 1.4 1.4 2.0 1.2 1.5 1.3 1.8 1.5
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