–Pattern Now One of Modest Growth; Hope is Q4 Can Surge

By Joseph Plocek

WASHINGTON (MNI) – The U.S. Q3 GDP revision was worse than
expected at +2.0%, a half point lower than the original estimate and
0.4 point under the median estimate made by private economists.

Inventories and imports were revised down in Q3, as expected from
new source data.

But lower transportation equipment (autos and aircraft) and lower
information processing software also cut nonresidential investment. At
the same time, lower auto fuels/lubricants spending based on new pricing
lowered consumption.

The Commerce Department also excluded from exports gold held as a
store of value, resulting in what was called “a sizeable difference”
between trade reports and the GDP calculation.

The GDP pattern is now a continuation of modest growth and the hope
is Q4 growth can surge. So far, better retail sales suggest Q4 is doing
better, though the economy probably will be hard pressed to reach more
than 3% real growth. In addition, the fact that inventories have cut
from growth in three consecutive periods suggests this lean sector can
start adding to growth at any time.

Real growth declined from Q1:2008 to Q2:2009, but the subsequent
six-period rebound was anemic by historical standards. The latest data
still show growth weakening again in H1:2011 and, now, merely bouncing a
bit in Q3.

Corporate profits in Q3 printed +$39.8 billion, or +2.1%, from
current production. Pre-tax profits were up $30.9 billion as
nonfinancial firms’ profits dipped.

Q2 wages were revised $39.8 billion lower after incorporating
irregular pay such as bonuses and stock options, suggesting less buying
power. Real disposable income is now estimated at -0.5% in Q2 and -2.1%
in Q3.

Price indices were little changed. GDP prices were +2.5% in Q3
after +2.5% in Q2; PCE core prices were +2.0% after +2.3%.

GDP Components: Q1 Q2 prelm Q2 rev Q2 final Q3 prel Q3 rev
Real growth +0.4% +1.3% +1.0% +1.3% +2.5% +2.0%
Real final sales +0.0 +1.1 +1.2 +1.6 +3.6 +3.6
PCE +2.1 +0.1 +0.4 +0.7 +2.4 +2.3
Nonres fixed invest +2.1 +6.3 +9.9 +10.3 +16.3 +14.8
Res fixed invest +2.4 +3.8 +3.4 +4.2 +2.4 +1.6
Net Exprt Contrib cut 0.34 add 0.58 add 0.09 add 0.24 add 0.22 add 0.49
Inventory Contrib add 0.32 add 0.18 cut 0.23 cut 0.28 cut 1.08 cut 1.55

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