3Q GDP Growth Revised Lower Again, This Time to 1.8% As Consumption Estimates Lowered

Posted on December 22, 2011

The Bureau of Economic Analysis reported that its third estimate of third quarter GDP growth rose at a seasonally adjusted annual rate of 1.8 percent. This was lower than the consensus estimate of 2.0 percent but within the consensus range of 1.5% to 2.3%.

A reduction in the estimate of consumption on services was primarily responsible for the downward revision in personal consumption expenditures,which made up 70.7 percent of total GDP in the third quarter. An increase in the third estimate of private inventories was the primary reason for the increase in private domestic investment in the third quarter.  Government consumption expenditures were unchanged from the previous estimate.

Corporate profits expressed as a percentage of GDP was also lowered to 1.90 billion, or 14.8% of GDP in the third quarter compared to 1.93 billion, or 14.6% of GDP in the second quarter. If the euro continues to weaken against the US dollar those US Multinationals operating in the euro zone countries where the euro is the companies functional currency may experience earnings hits when they translate their financials back to US dollars.

I am still planning to write a more comprehensive piece on GDP. However, It will be best to wait until early January before publishing. As I wrote last month, we will also see how close we are to achieving Grover Norquist’s dream of going back to a time in US history our government operated on 8 percent of GDP.

US Gross Domestic Product (GDP)
  Previous Qtr Current Qtr
Real GDP Quarter-to-Quarter 1.3% 2.0% 1.8%
Corporate Profits as a % of GDP 14.60%   14.78%