U.S. Q3 GDP Growth Revised Up Further in Third Estimate

The third estimate of GDP is usually uneventful. However, the third estimate of Q3 GDP was an exception as GDP growth was unexpectedly revised up 0.3%-point to 3.2% with the upward revision spread across domestic demand components. The Action Economics Forecast Survey had looked for no revision. Real personal consumption expenditure growth was the major factor behind today’s upward revision. Its growth was revised up to a respectable 2.3% from 1.7%, boosting its contribution to overall GDP growth to 1.5%-points from 1.2%-points in the second estimate. The largest contribution to Q3 GDP growth was still provided by net exports. The narrowing of the trade deficit in Q3 was revised slightly smaller with the contribution to GDP growth from net exports revised down marginally to 2.86%-points from 2.93%-points. However, the September and October trade reports have shown that the trade deficit has begun to widen again and so, trade is unlikely to provide a boost to GDP in Q4.

Another meaningful upward revision to business investment in structures also contributed to the overall upward revision. Business spending on structures fell a much more modest 3.6% q/q saar versus -6.9% in the second estimate and -15.3% in the advance report. By contrast, the drag from the slowdown in inventory investment was revised slightly larger. Inventories rose a revised $38.7 billion (2012$) in Q3, down from $49.6 billion in the second estimate and $61.9 billion in the advance report. This increased their drag on Q3 GDP growth to 1.2%-points from the second estimate of 1.0%-point. The previously reported 26.8% quarterly drop in residential investment was little revised to -27.1% and still subtracted 1.4%-points from overall GDP growth as the Federal Reserve’s aggressive increase in interest rates continues to take its toll on the housing sector. Government spending growth was revised up to 3.7% from the second estimate of 3.0% with the revision mostly accounted for by an upward revision to spending by state and local governments.

Private domestic demand was considerably stronger in Q3 upon the third estimate though it remained anemic. Growth of final sales to private domestic purchasers was revised up meaningfully to a 1.1% q/q saar increase from 0.5% in the second estimate and an extremely weak 0.1% in the advance report.

The third estimate of quarterly GDP contains the second estimate of quarterly corporate profits. They were revised up to unchanged in Q3 from the initially reported 1.1% q/q fall (not annualized). The upward revision was more than accounted for by an upward revision to domestic profits. Domestic profits edged up 0.6% q/q in Q3 upon revision versus the initially reported 1.1%quarterly fall. By contrast, the initially reported 1.0% q/q decline in foreign profits was revised to a 3.4% fall. Annual growth in corporate profits continued to slow under the weight of rising interest rates and a slowing global economy, though this growth was revised slightly higher in the second estimate. Compared to a year ago, total corporate profits were revised to +5.5% versus the first estimate of 4.4%, but still down from 7.7% y/y in Q2 and 10.9% y/y in Q1.

Inflation as measured by the GDP price index was revised slightly higher in the third estimate—to 4.4% q/q saar from 4.3% in the second estimate and 4.1% in the advance report, still down sharply from the 40-year high of 9.0% in Q2. The Action Economics Forecast Survey had expected no revision. The previously reported 4.3% increase in the PCE price index was not revised in the third estimate.

The GDP figures can be found in Haver's USECON and USNA databases. 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.