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Economy in Brief

U.S. GDP Growth Is Unchanged but Corporate Profits Are Weakened
by Tom Moeller  December 20, 2019

Estimated real growth in the economy during Q3'19 was unrevised in the third estimate at 2.1% (2.1% y/y) and remained better than the advance estimate of 1.9%. The figure was as expected in the Action Economics Forecast Survey. Growth in consumer spending, business investment and government spending was revised up but residential investment was lowered.

Corporate profits after tax fell 1.2% (-1.1% y/y, revised from -0.6%, following a 3.3% Q2 increase. It was the third decline in the last four quarters. Before-tax profits with CCA and IVA eased 0.2% (-1.2% y/y). Domestic nonfinancial profits fell 0.7% (-2.1% y/y), revised from +0.7%, while financial sector earnings fell a lessened 1.1% (+5.1% y/y). Foreign sector profits increased a little-changed 1.0% (6.3% y/y).

Domestic final sales growth was revised up to 2.2% (2.2% y/y) from 2.0%, after a 3.6% Q2 gain. Growth in personal spending was raised to 3.1% (2.6% y/y) and remained roughly steady with growth during the last three years. Spending on services improved 2.2% (1.8% y/y), revised from 1.7%, following a 2.8% Q2 rise. Durable goods spending growth was little changed at 8.1% (5.5% y/y) after strengthening 13.0% in the second quarter. Growth in purchases of nondurable goods was revised down slightly to 3.9% (3.5% y/y) after a 6.5% jump.

The decline in business fixed investment was lessened to 2.3% (+1.4% y/y), from -2.7%. Spending on structures fell 9.9% (-6.7% y/y), revised from -12.0% (-7.3% y/y) which followed an 11.1% drop. Equipment investment declined an unrevised 3.8% (+1.0% y/y), the first material quarterly decline in three years. It was prompted by a 6.4% weakening (+1.8% y/y) in information processing equipment investment. Intellectual property product investment rose 4.6% (7.6% y/y) as software spending rose by a raised 42.8% (10.2% y/y).

Growth in residential investment was lessened to 4.6% (-1.1% y/y) from 5.1% but remained the first increase since Q4'17.

Government spending growth was raised slightly to 1.7% (2.2% y/y) and remained less than half the prior quarter's increase. Federal government spending rose 3.3% (3.7% y/y) following an 8.3% improvement. Nondefense outlays strengthened 5.0% (2.4% y/y) last quarter after a 16.1% jump. Defense spending rose 2.2% (4.6% y/y), the weakest increase since Q1'18. Spending by state & local governments improved 0.7% (1.4% y/y) following a 2.7% rise.

Inventories contribution to growth last quarter was shaved to zero from 0.2 percentage points. Foreign trade's effect on growth was an unchanged -0.1 percentage point. Exports rose 0.9% (0.2% y/y) while imports rose 1.8% (0.9% y/y).

The GDP price index rose an unchanged 1.8% (1.7% y/y) after a 2.4% gain during Q2. The PCE price index rose 1.5% (1.4% y/y) after a 2.4% rise, while prices excluding food & energy improved 2.1% (1.7% y/y). The business fixed investment price index rose 0.5% and a fairly steady 1.0% y/y. The residential investment price index strengthened 3.4% but the y/y increase slowed to 2.5%, the weakest growth since early 2016.

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.

Chained 2012 $ (%, AR) Q3'19 (Third Estimate) Q3'19 (Second Estimate) Q3'19 (Advance Estimate) Q2'19 Q1'19 Q3'19 Y/Y 2018 2017 2016
Gross Domestic Product 2.1 2.1 1.9 2.0 3.1 2.1 2.9 2.4 1.9
  Inventory Effect (%-point) 0.0 0.2 -0.1 -0.9 0.5 -0.1 0.1 0.1 -0.3
Final Sales 2.1 2.0 2.0 3.0 2.6 2.2 2.8 2.3 2.2
  Foreign Trade Effect (%-point) -0.1 -0.1 0.0 -0.7 0.7 -0.1 -0.2 -0.2 -0.2
Domestic Final Sales 2.2 2.0 2.0 3.6 1.8 2.2 3.0 2.5 2.4
   
  Personal Consumption Expenditure 3.1 2.9 2.9 4.6 1.1 2.6 3.0 2.6 2.7
  Nonresidential Fixed Investment -2.3 -2.7 -3.0 -1.0 4.4 1.4 6.4 4.4 0.7
  Residential Investment 4.6 5.1 5.1 -2.9 -1.1 -1.0 -1.5 3.5 6.5
  Government Spending 1.7 1.6 2.0 4.8 2.9 2.2 1.7 0.7 1.8
Chain-Type Price Index
   GDP 1.8 1.8 1.7 2.4 1.1 1.7 2.4 1.9 1.0
    Personal Consumption Expenditure 1.5 1.5 1.5 2.4 0.4 1.4 2.1 1.8 1.0
        Less Food & Energy 2.1 2.1 2.2 1.9 1.1 1.7 1.9 1.6 1.6
    Nonresidential Investment 0.5 0.5 0.6 2.0 1.6 1.0 1.4 1.0 -0.9
    Residential Investment 3.4 3.4 3.3 1.7 2.6 2.5 5.6 4.5 3.5
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