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Economy in Brief

U.S. GDP Growth Is Unrevised; Profits Growth Improves
by Tom Moeller  November 28, 2018

Real gross domestic product increased 3.5% (AR, 3.0% y/y) during Q3'18, unrevised from the advance estimate. It followed a 4.2% rise during the second quarter. A 3.6% advance had been expected in the Action Economics Forecast Survey.

Accompanying the report was the initial indication of after-tax corporate profits, which rose 3.3% (19.4% y/y) including adjustments for inventory valuation and depreciation. The rise followed 2.1% growth in the second quarter. Profits without inventory & depreciation allowances rose 0.7% (5.9% y/y) following a 3.3% Q2 increase. Domestic nonfinancial sector earnings grew 5.1% (15.8% y/y) but financial sector earnings eased 1.7% (-9.0% y/y). Foreign sector profits increased 3.7% (8.7% y/y).

Growth in domestic final sales of 3.1% (3.3% y/y) was unrevised. Personal consumption expenditures was lessened to 3.6% (3.0% y/y) from 4.0%. Spending of durable goods was reduced to 3.9% (5.6% y/y) from 6.9% as motor vehicle purchases fell 1.5% (+1.6% y/y) instead of rising modestly. Recreational vehicle purchases growth was reduced to 9.1% (9.4% y/y) and spending growth on home furnishings of 6.8% (6.5% y/y) was revised slightly lower. Nondurable goods purchases surged 5.3% (3.3% y/y) which was little-revised. Clothing purchases strengthened 11.2% (5.3% y/y), the quickest growth since Q4'05, and food & beverages expenditures rose an improved 3.8% (3.7% y/y). Gasoline & fuel oil buying declined 1.2% (-0.4% y/y). Spending on services improved a little-revised 3.1% (2.4% y/y). It remained the quickest growth since early 2015. Outlays at restaurants surged 7.0% (4.2% y/y) which followed an 8.1% Q2 rise. Together these growth rates are the strongest in 25 years. Health care outlays increased 4.2% (2.5% y/y) and financial services insurance rose 1.0% (0.4% y/y). Housing & utilities outlays gained 1.1% (1.5% y/y) but recreation spending eased 0.2% (+0.9% y/y).

Government sector spending also was reduced to 2.6% (2.3 y/y) from 3.3%. Federal government outlays grew a steady 3.5% both q/q and y/y. National defense spending strengthened 4.9% and the 4.2% y/y increase was the strongest since 2009. Outlays by state & local governments grew a strengthened 2.0% (1.5% y/y).

Countering the downward revisions was strengthened 2.5% growth (6.8% y/y) in business fixed investment, initially estimated at 0.8%. Structures investment is shown to have eased a lessened 1.7% (+6.8% y/y). Industrial equipment spending advanced 9.8% (4.6% y/y), while information processing equipment investment grew a strengthened 7.4% (9.7% y/y). Transportation equipment expenditures declined 3.9% (+5.2% y/y). Investment in intellectual products was lessened to 4.3% (7.3% y/y).

The fall in residential investment was lessened to 2.6% (+0.8% y/y) from -4.0%. It remained the third straight quarter of decline.

The chain type GDP prices index was unrevised at an expected 1.7% (2.3% y/y), following a 3.0% increase. The 1.5% rise in the PCE price index was the weakest in a year, but the business fixed investment price index remained firm at 1.5% (1.2% y/y), the quickest growth in roughly four years. The residential investment price index increased 3.6% (5.7% y/y), roughly half the growth during the prior two quarters.

The GDP figures can be found in Haver's USECON and USNA database. USNA contains virtually all of the Bureau of Economic Analysis' detail in the national accounts. Both databases include tables of the newly published not seasonally adjusted data. The Action Economics consensus estimates can be found in AS1REPNA.

The Federal Reserve's Framework for Monitoring Financial Stability is the title of today's speech by Fed Chair Jerome H. Powell. It can be found here.

Chained 2012 $ (%, AR) Q3'18 (Second Estimate) Q3'18 (Advance Estimate) Q2'18 Q1'18 Q3'18 Y/Y 2017 2016 2015
Gross Domestic Product 3.5 3.5 4.2 2.2 3.0 2.2 1.6 2.9
  Inventory Effect 2.3 2.1 -1.2 0.3 0.1 0.0 -0.5 0.3
Final Sales 1.2 1.4 5.4 1.9 2.9 2.2 2.1 2.6
  Foreign Trade Effect -1.9 -1.8 1.2 0.0 -0.4 -0.3 -0.3 -0.8
Domestic Final Sales 3.1 3.1 4.0 1.9 3.3 2.5 2.3 3.3
Demand Components
  Personal Consumption Expenditure 3.6 4.0 3.8 0.5 3.0 2.5 2.7 3.7
  Nonresidential Business Fixed Investment 2.5 0.8 8.7 11.5 6.8 5.3 0.5 1.8
  Residential Investment -2.6 -4.0 -1.4 -3.4 0.8 3.3 6.5 10.1
  Government Spending 2.6 3.3 2.5 1.5 2.3 -0.1 1.4 1.9
Chain-Type Price Index
   GDP 1.7 1.7 3.0 2.0 2.3 1.9 1.1 1.0
    Personal Consumption Expenditures 1.5 1.6 2.0 2.5 2.2 1.8 1.1 0.3
    Nonresidential Investment 1.5 1.5 2.0 0.7 1.2 0.7 -0.8 0.5
    Residential Investment 3.6 4.0 7.3 8.8 5.7 4.5 3.6 2.7
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