Q3 GDP Revised All The Way Down To 2.2%, Much Lower Than Expectations

Revised Q3 GDP came in a 2.2%, which was below the 2.8% analysts had been expecting. It’s also well lower than the 3.5% that was initially reported.

Here’s the full announcement from the Commerce Department

——

Real gross domestic product — the output of goods and services produced by labour and property
located in the United States — increased at an annual rate of 2.2 per cent in the third quarter of
2009, (that is, from the second quarter to the third quarter), according to the “third” estimate
released by the Bureau of Economic Analysis.  In the second quarter, real GDP decreased 0.7 per cent.

      The GDP estimate released today is based on more complete source data than were available for
the “second” estimate issued last month.  In the second estimate, the increase in real GDP was 2.8
per cent (see “Revisions” on page 3).

      The increase in real GDP in the third quarter primarily reflected positive contributions from
personal consumption expenditures (PCE), exports, private inventory investment, federal government
spending, and residential fixed investment that were partly offset by a negative contribution from
nonresidential fixed investment.  Imports, which are a subtraction in the calculation of GDP, increased.

      The upturn in real GDP in the third quarter primarily reflected upturns in PCE, in exports, in
private inventory investment, and in residential fixed investment and a smaller decrease in
nonresidential fixed investment that were partly offset by an upturn in imports, a downturn in state and
local government spending, and a deceleration in federal government spending.

_______________
FOOTNOTE.–Quarterly estimates are expressed at seasonally adjusted annual rates, unless otherwise
specified.  Quarter-to-quarter dollar changes are differences between these published estimates.  per cent
changes are calculated from unrounded data and are annualized.  “Real” estimates are in chained (2005)
dollars.  Price indexes are chain-type measures.

    This news release is available on BEA’s Web site along with the Technical Note and Highlights
related to this release.
_______________

      Motor vehicle output added 1.45 percentage points to the third-quarter change in real GDP after
adding 0.19 percentage point to the second-quarter change.  Final sales of computers subtracted 0.08
percentage point from the third-quarter change in real GDP after subtracting 0.04 percentage point from
the second-quarter change.

      The price index for gross domestic purchases, which measures prices paid by U.S. residents,
increased 1.3 per cent in the third quarter, 0.1 percentage point less than the second estimate; this index
increased 0.5 per cent in the second quarter.  Excluding food and energy prices, the price index for gross
domestic purchases increased 0.3 per cent in the third quarter, compared with an increase of 0.8 per cent
in the second.

      Real personal consumption expenditures increased 2.8 per cent in the third quarter, in contrast to
a decrease of 0.9 per cent in the second.  Real nonresidential fixed investment decreased 5.9 per cent,
compared with a decrease of 9.6 per cent.  Nonresidential structures decreased 18.4 per cent, compared
with a decrease of 17.3 per cent.  Equipment and software increased 1.5 per cent, in contrast to a decrease
of 4.9 per cent.  Real residential fixed investment increased 18.9 per cent, in contrast to a decrease of
23.3 per cent.

      Real exports of goods and services increased 17.8 per cent in the third quarter, in contrast to a
decrease of 4.1 per cent in the second.  Real imports of goods and services increased 21.3 per cent, in
contrast to a decrease of 14.7 per cent.

      Real federal government consumption expenditures and gross investment increased 8.0 per cent
in the third quarter, compared with an increase of 11.4 per cent in the second.  National defence increased
8.4 per cent, compared with an increase of 14.0 per cent.  Nondefense increased 7.0 per cent, compared
with an increase of 6.1 per cent.  Real state and local government consumption expenditures and gross
investment decreased 0.6 per cent, in contrast to an increase of 3.9 per cent.

      The change in real private inventories added 0.69 percentage point to the third-quarter change in
real GDP, after subtracting 1.42 percentage points from the second-quarter change.  Private businesses
decreased inventories $139.2 billion in the third quarter, following decreases of $160.2 billion in the
second quarter and $113.9 billion in the first.

      Real final sales of domestic product — GDP less change in private inventories — increased 1.5
per cent in the third quarter, compared with an increase of 0.7 per cent in the second.

Gross domestic purchases

      Real gross domestic purchases — purchases by U.S. residents of goods and services wherever
produced — increased 3.0 per cent in the third quarter, in contrast to a decrease of 2.3 per cent in the
second.

Gross national product

      Real gross national product — the goods and services produced by the labour and property
supplied by U.S. residents — increased 3.0 per cent in the third quarter, in contrast to a decrease of 1.0
per cent in the second.  GNP includes, and GDP excludes, net receipts of income from the rest of the
world, which increased $25.7 billion in the third quarter after decreasing $7.4 billion in the second; in
the third quarter, receipts increased $15.7 billion, and payments decreased $10.0 billion.

Current-dollar GDP

      Current-dollar GDP — the market value of the nation’s output of goods and services — increased
2.6 per cent, or $90.9 billion, in the third quarter to a level of $14,242.1 billion.  In the second quarter,
current-dollar GDP decreased 0.8 per cent, or $26.8 billion.

Revisions

      The “third” estimate of the third-quarter increase in real GDP is 0.6 percentage point, or $17.3
billion, lower than the second estimate issued last month, primarily reflecting downward revisions to
nonresidential fixed investment, to private inventory investment, and to personal consumption
expenditures.

                                         Advance Estimate     Second Estimate      Third Estimate
                                                 (per cent change from preceding quarter)

Real GDP…………………………….      3.5                 2.8                 2.2
Current-dollar GDP……………………      4.3                 3.3                 2.6
Gross domestic purchases price index……      1.6                 1.4                 1.3

                                        Corporate Profits

    Profits from current production (corporate profits with inventory valuation and capital
consumption adjustments) increased $132.4 billion in the third quarter, compared with an increase of
$43.8 billion in the second quarter.  Current-production cash flow (net cash flow with inventory
valuation adjustment) — the internal funds available to corporations for investment — increased $28.4
billion in the third quarter, in contrast to a decrease of $30.5 billion in the second.

     Taxes on corporate income increased $15.1 billion in the third quarter, compared with an increase
of $35.6 billion in the second.  Profits after tax with inventory valuation and capital consumption
adjustments increased $117.3 billion in the third quarter, compared with an increase of $8.2 billion in
the second.  Dividends decreased $6.1 billion, compared with a decrease of $62.1 billion; current-
production undistributed profits increased $123.5 billion, compared with an increase of $70.3 billion.

    Domestic profits of financial corporations increased $82.8 billion in the third quarter, compared
with an increase of $28.5 billion in the second.  Domestic profits of nonfinancial corporations increased
$27.6 billion in the third quarter, compared with an increase of $29.8 billion in the second.  In the third
quarter, real gross value added of nonfinancial corporations increased, and profits per unit of real value
added increased.  The increase in unit profits reflected decreases in both unit nonlabor and labour costs
that more than offset a decrease in unit prices.

    The rest-of-the-world component of profits increased $22.0 billion in the third quarter, in contrast
to a decrease of $14.6 billion in the second.  This measure is calculated as (1) receipts by U.S. residents
of earnings from their foreign affiliates plus dividends received by U.S. residents from unaffiliated
foreign corporations minus (2) payments by U.S. affiliates of earnings to their foreign parents plus
dividends paid by U.S. corporations to unaffiliated foreign residents.  The third-quarter increase was
accounted for by a larger increase in receipts than in payments.

    Profits before tax with inventory valuation adjustment is the best available measure of industry
profits because estimates of the capital consumption adjustment by industry do not exist.  This measure
reflects depreciation-accounting practices used for federal income tax returns.  According to this
measure, domestic profits of both financial and nonfinancial corporations increased in the third quarter.
The increase in nonfinancial corporations reflected increases in utilities, information, “other”
nonfinancial, retail trade, and transportation and warehousing that were partly offset by decreases in
wholesale trade and manufacturing.  Within manufacturing, the largest decrease was in “other” durable
goods, and the largest increase was in motor vehicles.

    Profits before tax increased $157.9 billion in the third quarter, compared with an increase of $90.6
billion in the second.  The before-tax measure of profits does not reflect, as does profits from current
production, the capital consumption and inventory valuation adjustments.  These adjustments convert
depreciation of fixed assets and inventory withdrawals reported on a tax-return, historical-cost basis to
the current-cost measures used in the national income and product accounts.  The capital consumption
adjustment increased $9.7 billion in the third quarter (from -$128.6 billion to -$118.9 billion), compared
with an increase of $16.3 billion in the second.  The inventory valuation adjustment decreased $35.2
billion (from $18.1 billion to -$17.1 billion), compared with a decrease of $63.0 billion.

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