US GDP Growth for Q3 Revised up to 3.6 Percent; Corporate Profits Reach New Highs
New data released today by the Bureau of Economic Analysis show that the U.S. economy grew at a respectable annual rate of 3.6 percent in the third quarter of 2013. That made it the first quarter since early 2012 for which growth was fast enough to make a significant dent in the output gap. The advance estimate released last month had put growth at 2.5 percent.
However, the upward revision must be interpreted with caution, since, as the following table shows, it was due almost entirely to an increase in the estimated growth of inventories. Faster inventory growth is an ambiguous indicator. In some cases, it can mean that businesses are stocking up in anticipation of higher future sales, but inventories can also grow when firms produce more than they had hoped to sell or order raw materials but fail to use them at the rate they had expected. On a more positive note, the contribution of fixed investment was also revised upward, with residential and nonresidential structures leading the way.
Today’s release reported downward revisions for the contributions of consumer spending and net exports. Exports increased slightly less than previously reported, and imports were slightly stronger. (Note that imports enter into the national account with a negative sign, so the revision in the contribution of imports from -0.3 percentage points to -0.43 percentage points indicates more imports of goods and services than previously estimated.)
The federal government’s contribution to GDP was negative, as it has been for most of the past three years. However, decreasing federal government consumption and investment was more than offset by growth in state and local government spending.
Today’s report also gives the first look at corporate profits for the third quarter. Nominal corporate profits rose at an annual rate of 7.5 percent, and after-tax profits grew at a 10.7 percent annual rate. Both measures of profits reached record highs, and both grew faster than GDP. As the next chart shows, corporate profits as a percentage of GDP have been higher over the past two years than ever before, a fact that no doubt helps to explain the recent strong performance of stock prices.
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