This Morning’s Key Economic Data - GDP Revised for Q3
November 24, 2009 – This Morning’s Key Economic Data – Q3 Revised GDP – This morning’s revision in GDP for Q3 showed the economy expanded 2.8% in Q3, as compared with the initial estimate of 3.5%. Personal consumption numbers were perhaps the biggest disappointment (expectations were for 3.2% growth and the number came in at 2.9%).
Pundits are quick to remind us of the ‘glass half full’ reading on this morning’s numbers, which is that the economy grew. This is good news, but stocks have rallied to such high valuations – historically speaking – the question is whether the news is good enough to support the moves stocks have made.
Our take is that there is an increasingly Pollyanna view of recovery that is being perpetuated in the media, and embraced by Wall Street which doesn’t appropriately factor in areas of the economy that we should be more concerned about – rising unemployment and the implications on personal consumption, GDP and consumer confidence; erosion in the dollar which, while we don’t see it yet, will usher in inflationary pressures; and continued gridlock on Capitol Hill which will continue to be the fly in the ointment for efficient policy development and support which is needed to buttress the economy and any attempt at recovery.
Excerpt from this morning’s release:
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.8 percent in the third quarter of 2009, (that is, from the second quarter to the third quarter), according to the "second" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent.
The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 3.5 percent (see "Revisions" on page 3).
The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and residential fixed investment that were partly offset by a negative contribution from nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
The upturn in real GDP in the third quarter primarily reflected upturns in PCE, in private inventory investment, in exports, and in residential fixed investment and a smaller decrease in nonresidential fixed investment that were partly offset by an upturn in imports, a downturn in state and local government spending, and a deceleration in federal government spending.
FOOTNOTE.--Quarterly estimates are expressed at seasonally adjusted annual rates, unless otherwise specified. Quarter-to-quarter dollar changes are differences between these published estimates. Percent changes are calculated from unrounded data and are annualized. “Real” estimates are in chained (2005) dollars. Price indexes are chain-type measures.
This news release is available on BEA’s Web site along with the Technical Note and Highlights related to this release.
Motor vehicle output added 1.45 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change. Final sales of computers subtracted 0.13 percentage point from the third-quarter change in real GDP after subtracting 0.04 percentage point from the second-quarter change.
The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.4 percent in the third quarter, 0.2 percentage point less than in the advance estimate; this index increased 0.5 percent in the second quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 0.4 percent in the third quarter, compared with an increase of 0.8 percent in the second.
Real personal consumption expenditures increased 2.9 percent in the third quarter, in contrast to a decrease of 0.9 percent in the second. Real nonresidential fixed investment decreased 4.1 percent, compared with a decrease of 9.6 percent. Nonresidential structures decreased 15.1 percent, compared with a decrease of 17.3 percent. Equipment and software increased 2.3 percent, in contrast to a decrease of 4.9 percent. Real residential fixed investment increased 19.5 percent, in contrast to a decrease of 23.3 percent.
Real exports of goods and services increased 17.0 percent in the third quarter, in contrast to a decrease of 4.1 percent in the second. Real imports of goods and services increased 20.8 percent, in contrast to a decrease of 14.7 percent.
Real federal government consumption expenditures and gross investment increased 8.3 percent in the third quarter, compared with an increase of 11.4 percent in the second. National defense increased 8.9 percent, compared with an increase of 14.0 percent. Nondefense increased 6.9 percent, compared with an increase of 6.1 percent. Real state and local government consumption expenditures and gross investment decreased 0.1 percent, in contrast to an increase of 3.9 percent.
The change in real private inventories added 0.87 percentage point to the third-quarter change in real GDP, after subtracting 1.42 percentage points from the second-quarter change. Private businesses decreased inventories $133.4 billion in the third quarter, following decreases of $160.2 billion in the second quarter and of $113.9 billion in the first.
Real final sales of domestic product -- GDP less change in private inventories -- increased 1.9 percent in the third quarter, compared with an increase of 0.7 percent in the second.
Gross domestic purchases
Real gross domestic purchases -- purchases by U.S. residents of goods and services wherever produced -- increased 3.5 percent in the third quarter, in contrast to a decrease of 2.3 percent in the second.
Gross national product
Real gross national product -- the goods and services produced by the labor and property supplied by U.S. residents -- increased 3.8 percent in the third quarter, in contrast to a decrease of 1.0 percent in the second. GNP includes, and GDP excludes, net receipts of income from the rest of the world, which increased $31.6 billion in the third quarter after decreasing $7.4 billion in the second; in the third quarter, receipts increased $7.1 billion, and payments decreased $24.5 billion.
Current-dollar GDP
Current-dollar GDP -- the market value of the nation's output of goods and services – increased 3.3 percent, or $115.1 billion, in the third quarter to a level of $14,266.3 billion. In the second quarter, current-dollar GDP decreased 0.8 percent, or $26.8 billion.
Revisions
The second estimate of the third-quarter increase in real GDP is 0.7 percentage point lower, or $23.7 billion, than the advance estimate issued last month, primarily reflecting an upward revision to imports and downward revisions to personal consumption expenditures and to nonresidential fixed investment that were partly offset by an upward revision to exports.
Corporate Profits
Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $130.0 billion in the third quarter, compared with an increase of $43.8 billion in the second quarter. Current-production cash flow (net cash flow with inventory valuation adjustment) -- the internal funds available to corporations for investment -- increased $41.6 billion in the third quarter, in contrast to a decrease of $30.5 billion in the second.
Taxes on corporate income increased $6.7 billion in the third quarter, compared with an increase of $35.6 billion in the second. Profits after tax with inventory valuation and capital consumption adjustments increased $123.3 billion in the third quarter, compared with an increase of $8.2 billion in the second. Dividends decreased $12.7 billion compared with a decrease of $62.1 billion; current- production undistributed profits increased $136.1 billion, compared with an increase of $70.3 billion.
Domestic profits of financial corporations increased $97.0 billion in the third quarter, compared with an increase of $28.5 billion in the second. Domestic profits of nonfinancial corporations increased $12.9 billion in the third quarter, compared with an increase of $29.8 billion in the second. In the third quarter, real gross value added of nonfinancial corporations increased, and profits per unit of real value added increased. The increase in unit profits reflected a decrease in unit nonlabor costs that more than offset a decrease in unit prices; unit labor costs were unchanged.
The rest-of-the-world component of profits increased $20.1 billion in the third quarter, in contrast to a decrease of $14.6 billion in the second. This measure is calculated as (1) receipts by U.S. residents of earnings from their foreign affiliates plus dividends received by U.S. residents from unaffiliated foreign corporations minus (2) payments by U.S. affiliates of earnings to their foreign parents plus dividends paid by U.S. corporations to unaffiliated foreign residents. The third-quarter increase was accounted for by an increase in receipts and a slight decrease in payments.
Profits before tax increased $156.2 billion in the third quarter, compared with an increase of $90.6 billion in the second. The before-tax measure of profits does not reflect, as does profits from current production, the capital consumption and inventory valuation adjustments. These adjustments convert depreciation of fixed assets and inventory withdrawals reported on a tax-return, historical-cost basis to the current-cost measures used in the national income and product accounts. The capital consumption adjustment increased $9.2 billion in the third quarter (from -$128.6 billion to -$119.4 billion), compared with an increase of $16.3 billion in the second. The inventory valuation adjustment decreased $35.5 billion (from $18.1 billion to -$17.4 billion), compared with a decrease of $63.0 billion.
