- Third quarter real GDP growth was revised up slightly to 2.1% annualized, from 1.9% in the advance estimate, due largely to an upward revision to inventories. Final domestic demand growth was unrevised at 2.0%.
- Consumer spending grew by 2.9%, unchanged from the advance estimate. Beneath the headline, purchased of durable goods were revised up to 8.3% (prev. 7.6%), offset mainly by a downward revision to nondurable spending.
- The drop in business investment was a little smaller, now -2.7% (from -3.0% in the advance estimate). The upgrade was due to a smaller drop in spending on structures, down 12% (prev. -15.3%). Equipment outlays fell 3.8%, unrevised from the previous estimate. Spending on intellectual property products (IPP) was revised down slightly to 5.1% (prev 6.6%). IPP investment is an area of U.S. strength, and is making up an increasing share of the investment picture.
- Government spending growth was a tad softer, up 1.6% (prev. +2.0%), but Federal government spending growth was unrevised at a 3.4% increase. Spending at the state and local level rose 0.5% (prev. 1.1%).
- Export growth was revised up modestly to 0.9% (prev. 0.7%) and imports rose 1.5% (prev. 1.2%). Net trade subtracted 0.08%-points from headline GDP, close to our expectations.
- The most noteworthy revision was that inventories now added 0.2 percentage points to growth (prev. -0.05 p.p.).
- Also released with the second estimate of GDP, corporate profits cooled a bit in the third quarter, rising 0.2% (unannualized) and slowing from a pace of 3.8% in the second quarter. Profits are down 0.8% versus a year ago.
Key Implications
- Today’s GDP revisions do not change much about the picture of the U.S. economy, as a build-up in inventories is rarely a sign of economic strength. The consumer, residential investment and government spending were solid, while business investment was weak. It was encouraging to see that business investment was a bit less bad, but it doesn’t change the story that uncertainty has sent a chill through capital expenditures.
- The overall narrative of an economy that has slowed from around three percent (annualized) growth to two percent remains intact. But, third quarter GDP growth is pretty backward-looking at this point. More telling will be the personal income and spending data for October, which will be released at 10 am. This will give us a better sense of where consumer momentum was heading into the fourth quarter.
