U.S. 3Q'08 GDP Growth Unrevised; Profit's Fall Little Changed

As roughly indicated in the prior two reports, 3Q08 U.S. real GDP growth slipped 0.5%. The latest figure matched Consensus expectations. The y/y rate of growth of 0.7% continued as the weakest since the end of the 2001 recession. Corporate profits also were little revised and they posted a 1.2% drop and were down 9.2% y/y. Last quarter's decline was the seventh drop of the last eight quarters and the y/y change was the weakest since the 2001 recession. The financial sector's travails continued to lead profits lower. They were revised weaker and down by roughly one-third from the year ago level. Domestic nonfinancial corporations fell a little-revised 4.3% y/y. Finally, repatriated earnings from abroad rose 6.2% y/y which was slightly better than reported initially. Real U.S. final sales to domestic purchasers were little revised and they posted a 2.2% drop. That remained the largest quarterly decline since the end of the 1990-91 recession. The year-to-year dip of 0.2% was the first decline since 1991. Personal consumption expenditures fell at a 3.8% annual rate (-0.2% y/y). Spending on autos & light trucks collapsed at a 26.6% annual rate (-15.0% y/y). Real spending on furniture & other household equipment fell at an 8.2% rate but they were still up 2.6% y/y. Real spending on apparel fell at a 13.3% clip (-1.1% y/y) and that more than reversed a 2Q jump. Spending on consumer services slipped 0.1% and the y/y gain of 1.1% was the weakest since 1981. Residential construction fell a little revised 16.1% (-20.6% y/y) and subtracted 0.7% points from GDP growth.

The 1.7% decline in business fixed investment was little revised (+1.6% y/y). Equipment investment fell at a 7.5% rate (-3.1% y/y), the third consecutive quarter of decline while structures investment was firm again and rose at an upwardly revised 9.6% annual rate (11.2% y/y). Inventory accumulation was little revised and added 0.8 percentage points to GDP growth after three consecutive quarters of subtraction.

An improved foreign trade deficit added the same 1.1 percentage points to U.S. growth as estimated last month and it remained the main source of lift to GDP growth. The addition was, however, almost one third of that in 2Q. Exports grew at a slower 3.0% annual rate (6.1% y/y), half that in 2Q. Growth in imports weakened with the slowdown in overall economic growth and they fell at a 3.5% annual rate (-3.5% y/y). It was the fifth quarterly decline in the last six.

Spending by governments was strong again and rose 5.8% (3.1% y/y). That was little revised and the quickest since early 2003.

The estimate of the GDP chain price index was lowered to a still-strong 3.9% (AR) gain. The downward revision was due to a lowered jump in the PCE price index to 4.3%. Capital spending prices rose at an accelerated 4.2% rate (2.2% y/y) while the residential investment price deflator was revised downward and declined at a 2.4% rate; down for the fourth straight quarter (-2.4% y/y).

Agricultural Markets and Food Price Inflation - A conference summary from the Federal Reserve Bank of Chicago is available here.

Chained 2000$, % AR	3Q '08 (Final)	3Q '08 (Preliminary)	3Q '08 (Advance)	2Q '08	3Q Y/Y	2007	2006	2005
GDP	-0.5	-0.5	-0.3	2.8	0.7	2.0	2.8	2.9
Inventory Effect	0.8	0.9	0.6	-1.5	-0.4	-0.4	0.0	-0.2
Final Sales	-1.3	-1.4	-0.8	4.4	1.2	2.4	2.8	3.1
Foreign Trade Effect	1.1	1.1	1.1	2.9	1.4	0.6	0.2	0.0
Domestic Final Demand	-2.2	-2.3	-1.8	1.3	-0.2	1.8	2.6	3.1
Chained GDP Price Index	3.9	4.2	4.2	1.1	2.6	2.7	3.2	3.3