U.S. Q3 GDP Growth Revised Up in Second Estimate

The initially reported 2.6% q/q saar increase in U.S. real GDP was revised up to 2.9% in the second estimate. The Action Economics Forecast Survey had looked for a smaller upward revision to 2.7%. Real personal consumption expenditure growth was revised up to 1.7% from 1.4%, boosting its contribution to overall GDP growth to 1.2%-points from 1.0%-point in the advance report. The largest contribution to Q3 GDP growth was still provided by net exports. The narrowing of the trade deficit in Q3 was revised even larger with the contribution to GDP growth from net exports revised up to 2.93%-points from 2.77%-points in the advance report. However, as noted in the advance October trade report, also released this morning, the trade deficit has begun to widen again and so, trade is unlikely to provide a boost to GDP in Q4.

A meaningful upward revised to business investment in structures also contributed to the overall upward revision. Business spending on structures fell a much more modest 6.9% q/q saar in Q3 rather than the initially reported 15.3% q/q collapse. By contrast, the drag from the slowdown in inventory investment was revised larger. Inventories rose a revised $49.6 billion (2012$) in Q3, down from $61.9 billion in the advance report. This increased their drag on Q3 GDP growth to 1.0%-point from the initially reported 0.7%-point. The initially reported sharp 26.4% quarterly drop in residential investment was little revised to -26.8% 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 3.0% from 2.4% in the advance report with the revision totally accounted for by an increase in spending by state and local governments.

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

The second estimate of quarterly GDP contains the first estimate of quarterly corporate profits. They slipped 1.1% q/q (not annualized) in Q3 after a 4.6% quarterly jump in Q2. Domestic profits fell 1.1% q/q in Q3 after a 4.4% q/q increase in Q2 while foreign profits declined 1.0% q/q following a 5.8% increase in Q2. Annual growth in corporate profits continued to slow under the weight of rising interest rates and a slowing global economy. Compared to a year ago, total corporate profits were up 4.4% versus 7.7% y/y in Q2 and 10.9% y/y in Q1.

Inflation as measured by the GDP price index was revised higher in the second estimate—to 4.3% q/q saar from 4.1% in the advance report, down sharply from the 40-year high of 9.0% in Q2. The Action Economics Forecast Survey had expected no revision. The slowdown in inflation continued to be driven by a decline in energy prices. This can be seen in the PCE price index. The PCE price index excluding energy increased 5.2% in Q3 revised up from 5.1% in the advance report, but that was only a modest slowing from 5.4% in Q2. Overall PCE inflation was also revised up to 4.3% from 4.1% in the advance report. The only other meaningful revision to inflation was an upward revision to the prices paid by governments. They rose 3.7% in Q3, up from 3.2% in the advance report, reflecting upward revisions to prices paid by all levels of government.

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.