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Q3 GDP Final Revision Of 2.6%, Lower Than 2.8% Consensus, Inventories Climb Again As Personal Consumption Revision Plunges

Tyler Durden's picture




 

Disappointing Goldman which had expected a far higher number, the third Q3 GDP revision came at 2.6%, 0.1% higher than the second, but lower than the 2.8% consensus. And, as we expected the inventory artificial growth push continues to accelerate, after there was a substantial drop in the far more important Personal Consumption component which misses not only consensus of 2.9%, but the second revision of 2.8%, coming at 2.4%. In other words, the PCE surge which drove stocks higher on the second GDP revision has now been eliminated post re-revision, yet its impact of spiking stocks back then naturally lingers: surely our ministry of truth has learned from the best. From the BEA:  "The "third" estimate of the third-quarter increase in real GDP is 0.1 percentage point, or $1.1 billion, higher than the "second" estimate issued last month, primarily reflecting an upward revision to private inventory investment that was largely offset by a downward revision to personal consumption expenditures." And even uglier: corporate profits were up a meager 0.2%, compared to expectations of 1.3%, compared to a previous revision estimate of 1.0%. We are confident Jan Hatzius will spin this favorably shortly, and will bring you his "analysis" asap.

As can be seen on the chart below, the biggest marginal contributor to the 2.6% annualized growth was inventories, which increased from a 1.3% contribution to 1.61%, as PCE plunged from 1.97% to 1.67%. The sad truth: Just Government and Inventories account for virtually all the annualized GDP boost in Q3.

Other highlights:

  • US Personal Consumption (Q3 T) Q/Q 2.4% vs. Exp. 2.9% (Prev. 2.8%)
  • US Core PCE (Q3 T) Q/Q 0.5% vs. Exp. 0.8% (Prev. 0.8%)
  • US GDP Price Index (Q3 T) Q/Q 2.1% vs. Exp. 2.3% (Prev. 2.3%)

The acceleration in real GDP in the third quarter primarily reflected a sharp deceleration in imports and an acceleration in private inventory investment that were partly offset by a downturn in residential fixed investment and decelerations in nonresidential fixed investment and in exports.

Motor vehicle output added 0.49 percentage point to the third-quarter change in real GDP after subtracting 0.06 percentage point from the second-quarter change.  Final sales of computers added 0.29 percentage point to the third-quarter change in real GDP after adding 0.03 percentage point to the second-quarter change.

Full report

And here is Knight Capital's summary view, which is pretty much spot on with ours:

Besides the disappointing headline versus expectations,
the real kicker was the severely diminished personal consumption contribution
to GDP.  The 2nd revision showed a 1.97%
contribution to change, which was revised down to a 1.67% contribution in this
updated release.  However, it is positive
that the trend for the consumption contribution continues to grow (1Q10 1.33%,
2Q10 1.54%) as personal consumption has been the key driver of emergence from
the past eight recessions (usually between 50% and 120% of GDP growth).  Services suffered the most from the revision
- a bad sign for consumer spending's resiliency.

Given the expectations priced into the market for 1Q11,
this should cause a bit more of a rally in the front end of the curve - which
is oversold in our opinion.  This is
especially true when the backdrop of stubbornly higher unemployment and low
inflation is considered.  Equities will
likely price higher on low volume and the upward revision regardless of
expectations.

It's the bolded section that does not surprise us at all. Stocks are and have been for the past two years, completely disconnected from reality, but  very much connected to propaganda and administration policy tools.

 

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Wed, 12/22/2010 - 09:52 | 823560 Deep
Deep's picture

Whoooooooooooooo lets rally

Wed, 12/22/2010 - 09:52 | 823561 101 years and c...
101 years and counting's picture

time to get a daily watch on the BDI as it collapses.

Wed, 12/22/2010 - 09:52 | 823563 HamyWanger
HamyWanger's picture

Well, it's still very high. It confirms what I've observed: the consumer is spending.

I've just bought again a couple of AAPL.

Wed, 12/22/2010 - 09:55 | 823571 tmosley
tmosley's picture

I've got you beat there, Hamy.  I just bought a whole box full of apples.  Fujis, actually.  Very tasty.

Wed, 12/22/2010 - 10:17 | 823614 shushup
shushup's picture

Fuji's are my favorite too.

Wed, 12/22/2010 - 12:43 | 824026 Problem Is
Problem Is's picture

Pink Lady apples harry bitchez...

Wed, 12/22/2010 - 10:38 | 823656 Johrny Bravo
Johrny Bravo's picture

I've got you beat tmosley, just planted a whole shitload of aapl trees.

In three years I get to harvest my first Ipod !

Wed, 12/22/2010 - 11:15 | 823765 tmosley
tmosley's picture

I tried to plant apples a few years ago, but they were all killed by desert termites.  This sucks because it means my orchard, which should start producing in earnest next year or the year after, doesn't produce ANYTHING during the fall.  Maybe I'll try again next year.

Wed, 12/22/2010 - 12:36 | 823994 Johrny Bravo
Johrny Bravo's picture

Interesting, don't know how to deal with desert termites.

We use banty hens to control carpenter and fire ants though, don't know how hens do in the desert though..

I have had deer kill my apple trees by barking...

Wed, 12/22/2010 - 11:43 | 823842 -Michelle-
-Michelle-'s picture

You haven't had an apple until you've had a Honeycrisp.  Best.  Apple.  Ever.  I bought a case from the produce department (at 5% off cost!) and will buy another before the season ends.

Good for fresh eating and wonderful in pie.  I wish I could grow them here.

Wed, 12/22/2010 - 09:56 | 823572 Ferg .
Ferg .'s picture

Where is the real HarryWanger ? Last week I saw a HarnyWanger posting and now we have a  HamyWanger  .

Wed, 12/22/2010 - 09:58 | 823581 bobert
bobert's picture

Do we really want to know where he's at?

Wed, 12/22/2010 - 10:03 | 823592 Ferg .
Ferg .'s picture

I'd rather have him than the clones currently mimicking his views . Unusual that he hasn't been around despite this grind higher .

Wed, 12/22/2010 - 10:04 | 823595 bobert
bobert's picture

Understood.

Yeah maybe I miss him too.....(a little).

Wed, 12/22/2010 - 10:29 | 823642 tmosley
tmosley's picture

He's around.  I saw some posts from him yesterday.

Wed, 12/22/2010 - 10:02 | 823591 Samsonov
Samsonov's picture

Eventually all commenters with a realistic view of the markets get tired of the non-stop politics and snark here and give it up.  I think there's only a couple commenters remaining who have anything interesting to say; soon it'll be all cage-fighting all the time here.

Wed, 12/22/2010 - 10:07 | 823599 bobert
bobert's picture

A contemplative +.

Have a profitable day.

Wed, 12/22/2010 - 10:28 | 823636 Cursive
Cursive's picture

Government and inventory build responsible for positive GDP, but you mock ZH for lack of a realistic view? Priceless.

Wed, 12/22/2010 - 10:34 | 823648 tmosley
tmosley's picture

Define "realistic".  If Harry is what you consider realistic, then you're nuts.  His views are contradicted by 99% of credible data (after their final revisions).  He's happy-go-lucky, but we're in the middle of a Depression with no light at the end of the tunnel, with the ceiling starting to cave in.

Wed, 12/22/2010 - 12:44 | 824027 Samsonov
Samsonov's picture

I know that Harry understands that the market's purpose is to create profits, and I have no doubt that he has done just that.  Hyperbole about dark, collapsing tunnels doesn't offer any insight regarding whether or not to buy a stock; first hand observation of business in action does.

Wed, 12/22/2010 - 10:21 | 823625 Astute Investor
Astute Investor's picture

I heard Harry was at another "home furnishings" trade show and was buried under a display of scented candles and waxed flowers that collapsed.

Wed, 12/22/2010 - 10:39 | 823658 Johrny Bravo
Johrny Bravo's picture

Seems to be a trend of sorts....

Wed, 12/22/2010 - 09:53 | 823565 TWORIVER
TWORIVER's picture

They are about to dump Gold and Silver just like yesterday.

Wed, 12/22/2010 - 09:57 | 823577 Internet Tough Guy
Internet Tough Guy's picture

How did gold get dumped yesterday when it is 1390 today? Wake up.

Wed, 12/22/2010 - 10:30 | 823644 TWORIVER
TWORIVER's picture

How come it went to 1392 and got dumped? Next.

Wed, 12/22/2010 - 13:53 | 824233 EscapeKey
EscapeKey's picture

OH MY GOD IT DROPPED LESS THAN 0.5%.

Are you Joe Weaselthal by any chance?

Wed, 12/22/2010 - 09:56 | 823579 tmosley
tmosley's picture

I'm sure you mean naked short.

Hasn't worked on any of the last 6 days, not sure why it should work today.

Wed, 12/22/2010 - 10:29 | 823643 TWORIVER
TWORIVER's picture

You could be right, may see nothing for a week.

Wed, 12/22/2010 - 09:53 | 823566 Oh regional Indian
Oh regional Indian's picture

Revision to the lie,

Reversion to the mean.

Statistics feels like a needly giant slide right now!

Ouch, ouch, ouch, ouch!!!!

Inventory is like debt as a measure of wealth!

ORI

http://aadivaahan.wordpress.com

Wed, 12/22/2010 - 09:55 | 823569 israhole
israhole's picture

On fire!

Wed, 12/22/2010 - 09:55 | 823570 unwashedmass
unwashedmass's picture

that'll happen when you take away all of the peasantry's money.

so, .... exactly how much do we think the banks are going to leave us to rebuild?  i'm hoping we have some infrastructure left.

Wed, 12/22/2010 - 09:55 | 823573 bobert
bobert's picture

In my idealistic world economic metrics would not be

reported until they could be guaged accurately and there

would be no revisions. (I know that's wonderland but it's

nice being able to dream.)

Wed, 12/22/2010 - 09:55 | 823574 Implicit simplicit
Implicit simplicit's picture

GDP- Gross Disingenuous Ponzi

Wed, 12/22/2010 - 09:57 | 823580 Internet Tough Guy
Internet Tough Guy's picture

But at least oil is 90. Mission accomplished.

Wed, 12/22/2010 - 09:58 | 823582 Misean
Misean's picture

I love the spell of post Christmas sales that come after an uneconomic inventory ramp! Smells like Q1 2009...

Wed, 12/22/2010 - 10:00 | 823586 Ferg .
Ferg .'s picture

Wouldn't surprise me if we finish the day higher despite this poor data . Futures have barely taken a dent . Probably have to wait until Januray to see some weakness . Been looking at S&P charts from 2008 and 2009 . Had a rally each year in December and early January before taking a drop . Same scenario looks like it's playing out currently .

Wed, 12/22/2010 - 10:04 | 823594 bobert
bobert's picture

Yup, steady or up a little until congress gets down to the

task at hand ($1.5 T annual deficit) next year.

Wed, 12/22/2010 - 10:04 | 823596 Shocker
Shocker's picture

I'm Sorry but if you actually believe this number your either totally clueless or you been in a coma for 3 years. If you look around your local economy, you can see zero growth. More places are closing up fast than ever before. With all this stimlus we should of seen growth near 6% without even trying. Basically its sad we have to be lied to daily just for people to stay happy.

http://www.dailyjobcuts.com

 

Wed, 12/22/2010 - 10:08 | 823601 jtmo3
jtmo3's picture

Yep, wasn't 2.4. Rally On.

Buy everything. Stocks up, 10yr yields down. PM's flat. Life is so good.

Wed, 12/22/2010 - 10:14 | 823609 Boilermaker
Boilermaker's picture

...<drum roll>....futures are positive.

Why?  Well, why not?  It's gotta work better than the truth.

Chocolate rations doubled today!

Wed, 12/22/2010 - 10:58 | 823719 bobert
bobert's picture

Thank you, thank you, thank you.

I'm a chocoholic!

Wed, 12/22/2010 - 14:33 | 824355 ejmoosa
ejmoosa's picture

Forget the GDP numbers.  You better be paying attention to the corporate profit numbers.  Corporate profit from the second to the third quarter only increased  by just over 1%. 

Companies are in business to profit.  They only expand their businesses when the profits have the potential to expand. 

 

 

Wed, 12/22/2010 - 15:14 | 824486 DeanTheMachine
DeanTheMachine's picture

Anyone else just see this on bloomberg.com?

http://ploader.net/files/75504f170d914848fb87bbb492a4ec40.bmp

Do NOT follow this link or you will be banned from the site!