–Core PCE prices Now +0.8% (-0.2 pt); Corp Profits Pre-Tax +$76.3B

By Joseph Plocek

WASHINGTON (MNI) – The Q3 real GDP revision showed the expected 0.5
point upward growth revision, to +2.5%, setting the economy up for
better growth in the future as real final sales doubled to +1.2%.

The more favorable composition for future growth came about as key
spending components were revised higher. Consumption (there was more
spending on gasoline and used cars, based on new pricing and auto
registration data), exports and State and Local government spending
were revised up.

Still, real final sales gave their worst showing since Q2:2006,
giving plenty of room for improvement. With the exception of Q4:2009’s
+2.1%, real final sales have been below trend since the end of 2007.

At the same time inventories were revised down based on a new
survey that included an additional month’s data. This suggests that
production will have to ramp up to fill demand.

Corporate profits from current production gained 2.8% after posting
+3.0% in Q2. Pre-tax profits advanced $76.3 billion as financial firms
turned positive after a loss in Q2, and nonfinancial firms gained $17.6
billion.

Wages were revised up $46.3 billion in Q2 to include irregular pay
such as stock options and bonus income. This suggests there is better
ability to spend ahead. Real disposable personal income rose 5.6% in Q2,
better than the initial estimate of +4.4%, and Q3 real disposable income
was up 0.9% in Q3, better than the initial estimate of +0.5%.

Price indicators remained subdued. The core PCE price index was
revised 0.2 point lower to +0.8%. The overall GDP price index was up
2.3%, a far larger gain that reflected rising energy costs.

Looking ahead, the Q4 outcome still depends importantly on holiday
sales results. But so far, growth appears to have advanced nicely. Auto
sales were up for October and chain store sales appear to be rising,
giving cause for optimism.

GDP Components: Q4:09 Q1 Q2 Q3 Adv Q3 Rev
Real growth +5.0% +3.7% +1.7% +2.0% +2.5%
Real final sales +2.1 +1.1 +0.9 +0.6 +1.2
PCE +0.9 +1.9 +2.2 +2.6 +2.8
Nonres fixed invest -1.4 +7.8 +17.2 +9.7 +10.3
Res fixed invest -0.8 -12.3 +25.7 -29.1 -27.5
Net Exports Contrib add 1.90 cut 0.31 cut 3.50 cut 2.01 cut 1.76
Inventory Contrib add 2.83 add 2.64 add 0.82 add 1.44 add 1.30

**Market News International Washington Bureau: (202)371-2121**

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