Second Estimate for Q3 GDP Firm at 3.5%; GDI Gain Strongest Since 2014

The Bureau of Economic Analysis (BEA) reported the second estimate for third-quarter (Q3) gross domestic product (GDP) held firm at 3.5%, matching the forecast. The median consensus expected the advance Q3 U.S. economic growth to come in at 3.3%, but upped the consensus for the second estimate to 3.5%.

The BEA recently released the final estimate for Q2 2018 GDP, which held firm at 4.2%. The “second” estimate for Q3 2018, based on more complete data, will be released on November 28, 2018.

“No doubt there are positives and negatives behind the headline GDP report,” Tim Anderson, analyst at TJM said. “The price index held unchanged at +1.7 while many were expecting a lower revision.”

“While Q3 GDP remained unchanged at 3.5%, a worsening trade deficit was counter balanced by a higher level of business investment; +2.5% from a previous reading of +0.8% during the third quarter.”

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Indeed, as People’s Pundit Daily (PPD) reported on the quarter, business inventories have helped to offset a widening trade deficit. See more, here, here and here.

Real gross domestic income (GDI) gained 4.0% in the third quarter, compared with an increase of 0.9% (revised) in Q2. The average of real GDP and real GDI, increased 3.8% in the Q3, compared with an increase of 2.5% (revised) in Q2.

Consumer spending came in much stronger than the advance forecast anticipated, but it was downwardly revised to a still solid 3.6%.

The price index for gross domestic purchases rose 1.7% in Q3 juxtaposed to an increase of 2.4% in Q2. The PCE price index rose 1.5% juxtaposed to an increase of 2.0%. Excluding food and energy prices, the PCE price index rose 1.5%, compared with an increase of 2.1%.

“While risks from a potential escalation of trade tensions negatively impacted inventories as well as the trade deficit, corporate pretax earnings rose 10.3% year over year, the largest rise in 6 years,” Mr. Anderson added. “GDI rose 4%, the best increase since 2014.”

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $76.0 billion in the third quarter, compared with an increase of $65.0 billion in the second quarter.

Profits of domestic financial corporations decreased $7.8 billion in the third quarter, in contrast to an increase of $16.5 billion in the second quarter. Profits of domestic nonfinancial corporations increased $66.2 billion, compared with an increase of $53.0 billion.

Rest-of-the-world profits increased $17.6 billion, in contrast to a decrease of $4.5 billion. In the third quarter, receipts decreased $7.7 billion, and payments decreased $25.3 billion.