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Economy in Brief

U.S. GDP Growth Revised Higher; Profits Shaved
by Tom Moeller  December 22, 2016

Economic growth during the third quarter was revised higher to 3.5% (1.7% y/y), up from 3.2% in the second estimate and 2.9% in the advance reading. It remained the strongest increase in two years and exceeded the expectation of 3.3% growth in the Action Economics Forecast Survey.

After tax corporate profits without IVA and CCA increased 2.6% (4.3% y/y), down from the initial estimate of 3.5% (5.2% y/y) growth. It remained the weakest rise in three quarters. Nevertheless, the 4.3% y/y rise was the first positive comparison since the end of 2014. Overall corporate profits with IVA & CCA increased 5.8% (2. 1% y/y) after a 0.6% dip. The gain reflected an 10.2% y/y strengthening in financial industry earnings. Earnings from abroad increased 9.2% y/y, but nonfinancial sector profits fell 2.9% y/y.

The upward revision in GDP was led by 2.1% growth (1.8% y/y) in domestic final sales, revised from 1.7%. The 3.0% gain (2.8% y/y) in personal consumption expenditures was revised from 2.8%. Services buying increased an upwardly revised 2.7% (2.5% y/y) following a 3.0% Q2 gain. Recreation spending grew a quickened 5.6% (1.9% y/y), the first rise in three quarters. Health care spending increased 0.6% (4.3% y/y), and housing & utilities spending improved 2.6% (1.6% y/y). Spending on durable goods increased an unrevised 11.6% (6.1% y/y). Motor vehicle purchases grew 20.0% (4.1% y/y), up from 9.0% in the second quarter. Spending on recreational goods & vehicles advanced 9.7% (9.6% y/y) following a 14.5% gain. Home furnishings purchases increased 6.0% (6.5% y/y) following 9.3% Q2 growth. Spending on nondurable goods eased a minimally changed 0.5% (+2.1% y/y). Gasoline & fuel oil buying declined 2.4% (+0.5% y/y) following a 0.3% slip. Clothing purchases eased 0.9% (+1.0% y/y) after a 4.8% jump. Spending at restaurants gained 2.6% (3.2% y/y) after a 7.4% jump.

Business fixed investment rose a strengthened 1.4% (-1.1% y/y). Structures investment surged 12.0% (-1.8% y/y), revised from 10.1%, the third quarterly increase in two years. Equipment spending fell a little-changed 4.5% (-4.9% y/y), the fifth quarterly decline in six quarters. A 17.0% drop (-10.5% y/y) in transportation equipment purchases led the way lower, along with a 2.6% fall (+3.2% y/y) in industrial equipment. purchases. Information processing equipment investment offset these declines with a 9.1% rise (2.2% y/y), the first increase this year. Investment intellectual property products grew 3.2% (5.1% y/y) following a 9.0% Q2 rise.

Residential investment declined 4.1% (+1.5% y/y), revised from -4.4%, following a 7.8% decline.

Government spending improved 0.8% (0.4% y/y) after a 1.7% fall in Q2. Federal government investment increased 2.4% (1.1% y/y) as nondefense spending grew 3.0% (2.6% y/y). Defense spending improved 2.1%, but was little changed y/y. State & local government spending eased -0.2%, unchanged y/y and down for the third quarter in the last four.

Improvement in the foreign trade deficit added 0.9 percentage points to economic growth last quarter, but little y/y. Exports jumped 10.0% (2.0% y/y), the strongest gain since Q4'13. Imports increased 2.2% (0.6% y/y) following stability during the prior six months. Inventory building contributed an unrevised 0.5 percentage points to GDP growth following five straight quarters of subtraction..

The chain-type price index increased an unrevised 1.4% (1.3% y/y) after a 2.3% Q2 rise. The PCE price index grew 1.5% (1.0% y/y), while excluding food & energy he index rose 1.7% (1.7% y/y). The business fixed investment price index improved 0.2% (0.4% y/y), held back by a 0.4% decline (+0.5% y/y) in the intellectual property products price index. The residential investment price index strengthened a steady 5.2% (3.8% y/y).

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, 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) Q3'16 (3rd Estimate) Q3'16 (2nd Estimate) Q3'16 (Advance Estimate) Q2'16 Q1'16 Q3'16 Y/Y 2015 2014 2013
Gross Domestic Product 3.5 3.2 2.9 1.4 0.8 1.7 2.6 2.4 1.7
  Inventory Effect 0.5 0.5 0.6 -1.2 -0.5 -0.3 0.2 0.0 0.2
Final Sales 3.0 2.7 2.3 2.6 1.3 2.0 2.4 2.5 1.5
  Foreign Trade Effect 0.9 0.9 0.8 0.2 0.0 0.2 -0.7 -0.1 0.3
Domestic Final Sales 2.1 1.7 1.4 2.4 1.7 1.8 3.1 2.6 1.2
Demand Components
Personal Consumption Expenditures 3.0 2.8 2.1 4.3 1.6 2.8 3.2 2.9 1.5
Business Fixed Investment 1.4 0.1 1.1 1.0 -3.4 -1.1 2.1 6.0 3.5
Residential Investment -4.1 -4.4 -6.2 -7.8 7.8 1.5 11.7 3.5 11.9
Government Spending 0.8 0.2 0.5 -1.7 1.6 0.4 1.8 -0.9 -2.9
Chain-Type Price Index
GDP      1.4 1.4 1.5 2.3 0.5 1.3 1.1 1.8 1.6
Personal Consumption Expenditures 1.5 1.4 1.4 2.0 0.3 1.0 0.3 1.5 1.3
 Less Food/Energy 1.7 1.7 1.7 1.8 2.1 1.7 1.4 1.6 1.5
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