Final GDP revision shows tepid 3Q growth, corporate profits dampen broader economy

by Wesley Brown ([email protected]) 44 views 

A final revision of U.S. real gross domestic product (GDP) on Tuesday (Dec. 22) showed that lagging corporate profits helped to take the steam out of economy in the third quarter as the U.S. economy sagged well behind the growth of 3.9% in the previous quarter.

Real gross domestic product – the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes – increased at an annual rate of 2% in the third quarter of 2015, according to the “third” estimate released by the Bureau of Economic Analysis three days before Christmas.

The final GDP report of 2016 following two major economic events that will have a major effect on U.S. growth in 2016. Last week, the Federal Open Market Committee raised the federal fund rate a quarter point for the first time in nine years. That was followed this past weekend by passage of the sweeping omnibus spending bill by Congress that contains numerous provisions to extend tax relief to businesses and boost the U.S. economy.

According to the BEA, the third and final GDP report for the three-month period ended Sept. 30 shows GDP growth was off one percentage point from the second revision of 2.1% on Nov. 24, and six percentage points better than the first advance estimate of 1.5% on Oct. 29.

In the second quarter, real GDP was a robust 3.9%. The new forecast, however, is still one percentage point better than the GDPNow model forecast of 1.9% projected by the Atlanta Fed on Dec. 16.

According to the BEA, the year-ending GDP estimate is based on more complete source data than were available for the “second” estimate issued last month. With the third estimate for the third quarter, the general picture of economic growth remains the same – private inventory investment decreased more than previously estimated.

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, state and local government spending, residential fixed investment, and exports that were partly offset by a negative contribution from private inventory investment.

Following are other highlights of the third quarter GDP advance report.
• Real gross domestic income (GDI)
The value of the costs incurred and the incomes earned in the production of goods and services in the nation’s economy increased 2.7% in the third quarter, compared with an increase of 2.2% in the second.

• Real gross domestic purchases
Consumption by U.S. residents of goods and services wherever produced increased 2.2% in the third quarter, compared with an increase of 3.6% in the second.

• Price index for gross domestic purchases
This index, which measures prices paid by U.S. residents, increased 1.3% in the third quarter, compared with an increase of 1.5% in the second. Excluding food and energy prices, the price index for gross domestic purchases increased 1.3%, compared with an increase of 1.2%.

• Current-dollar GDP
The market value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production increased 3.3%, or $146.5 billion, in the third quarter to a level of $18 trillion. In the second quarter, current-dollar GDP increased 6.1%, or $264.4 billion.

On the corporate front, the revised report shows that profits of U.S. financial corporations decreased by $33 billion in the third quarter, in contrast to an increase of $70.4 billion in the second quarter. Profits of domestic financial corporations increased $1.8 billion in the third quarter, compared with an increase of $34.6 billion in the second. Profits of domestic nonfinancial corporations decreased $11.8 billion, in contrast to an increase of $24.3 billion. The rest-of-the-world component of profits decreased $23.1 billion, in contrast to an increase of $11.4 billion.

Corporate income taxes decreased $6.9 billion in the third quarter, in contrast to an increase of $31.3 billion in the second. Dividends, however, increased $26 billion in the third quarter, compared with an increase of $1.2 billion in the second.

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