Q3 GDP Unexpectedly Revised Higher: US Economy Grew A Brisk 2.1% As Fed Was Cutting Rates

With GDP estimates for the current quarter printing below 0.5% according to the Atlanta and NY Fed...

... markets will probably not care much how much the BEA revised Q3 GDP, although we are confident the US president will care, and will blast it on his tweeter account shortly, after GDP in the last quarter was revised unexpectedly higher, from 1.9% to 2.1% (2.130% to be precise), and up from the 2.0% GDP print in the second quarter.

According to the BEA, the revision to GDP reflected upward revisions to inventory investment, business investment, and  consumer spending. These revisions were partly offset by a downward revision to state and local government spending.
Some more details:

  • Personal Consumption was came in at 2.9% annualized, above the 2.8% expected, and contributed 1.97% of the bottom line GDP print, up from 1.93% in the first estimate.
  • Fixed Investment was also revised modestly higher, up from -0.22% to a -0.18% detraction from GDP
    • Nonresidential fixed investment, or spending on equipment, structures and intellectual property fell 2.7% in 3Q after falling 1% prior quarter
  • Private inventories saw the biggest revision, increasing from a negative -0.05% to a positive +0.17%.
  • Net trade, while generally flat, shrank modestly, from -0.08% to -0.11%, an $11 billion swing which was almost entirely responsible for the upward rise in bottom line GDP.
  • Government spending also dipped fractionally, declining from 0.35% to 0.28%.

And visually:

Even as the economy grew more than expected, inflation remained subdued, with the GDP price index rising 1.8% in 3Q after rising 2.4% prior quarter, and above the 1.7% expected. Meanwhile, Core PCE rose 2.1% in 3Q after rising 1.9% prior quarter; it was below the 2.2% expected print as the Fed continues to hedonically adjust anything that does not fit the narrative of non-existant inflation.

Finally, corporate profit growth ground to a halt in Q3, rising at a 0.2% quarterly rate in the third quarter after increasing 3.8% in the second quarter:

  • Profits of domestic nonfinancial corporations increased 0.7% after increasing 3.2%.
  • Profits of domestic financial corporations decreased 2.4% after increasing 0.6% .
  • Profits from the rest of the world increased 1.2% after increasing 7.7% .

And while we have yet to see where Q4 GDP will come out, the fact that the Fed cut rates three times in a quarter in which the economy rose 2.1% will surely prompt questions of what happens when the US economy finally contracts?