–Inventories Cut Less in Q3; Still Hoping Q4 Can Surge

By Joseph Plocek

WASHINGTON (MNI) – The U.S. Q3 GDP revision was worse than
expected, showing less growth with a poor composition, and slightly
worse inflation.

Q3 real GDP was revised down 0.2 point to +1.8%, mainly on lower
services consumption in health care based on new survey data. A Commerce
Department official said that most of the alterations were in the
nonprofit hospitals category, which proved to spend less than assumed.
It is unclear if this was due to a better economy cutting needs or due
to tighter reimbursement from insurance and government programs.

Real consumption was lowered 0.6 point from the prior estimate, and
the composition showed services lowered a full point while other areas
gained slightly from the revision.

Inventories were revised higher (so they cut less) due to more farm
inventory. This poor combination lowered real final sales by 0.4 point
to +3.2%.

Ordinarily a third revision to GDP would be ignored, but it is
disturbing that revisions have all been to slower growth. The pattern of
a very modest pickup in H2 is still in place, but not at all at the pace
expected.

More generally, GDP picked up in H2:2009, surged into early 2010,
but then slowed. GDP through Q3:2011 was in its fifth modest and
worrisome quarter out of nine periods (more than two years) of growth.

So far, Q4 looks stronger. Retail and auto sales data are coming in
higher, and hiring, and thus probably income, has stabilized.

GDP prices are now +2.6% in Q3, and are +1.8% ex food and energy.

Corporate profits were revised a little lower, now are showing
+1.7% (was +2.1%) from current production with inventory valuation and
capital consumption adjustments.

GDP Components: Q1 Q2 Q3 prelm Q3 rev Q3 final
Real growth +0.4% +1.3% +2.5% +2.0% +1.8%
Real final sales +0.0 +1.6 +3.6 +3.6 +3.2
PCE +2.1 +0.7 +2.4 +2.3 +1.7
Nonres fixed invest +2.1 +10.3 +16.3 +14.8 +15.7
Res fixed invest +2.4 +4.2 +2.4 +1.6 +1.3
Net Exprt Contrib cut 0.34 add 0.24 add 0.22 add 0.49 add 0.43
Inventory Contrib add 0.32 cut 0.28 cut 1.08 cut 1.55 cut 1.35

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