US Q3 GDP Revised Higher To 3.2%, Beating Expectations, On Stronger Consumer Spending

The unexpected economic growth spurt continued in the third quarter, when real GDP rose 3.2% according to the “second” estimate released by the Bureau of Economic Analysis, beating estimates of a 3.0% print, and 0.3% higher than the “advance” estimate released in October. This was the highest quarterly growth rate since the third quarter of 2014.

The revision was at the top of the forecast range and still the strongest quarter in two years. The PCE price index was a 1.4% annual rate, unchanged from the original Oct. 28 report and the core PCE price index stayed at 1.7%.

The upward revision to third-quarter GDP growth reflected upward revisions to consumer spending and to housing investment that were partly offset by downward revisions to business investment and to inventory investment.

The details of the revision showed the upward revision to consumer spending was in  both goods and services, with the goods measure benefiting from a tick  up in the "other" category of nondurables and to motor vehicles and  parts. In services, the upgrade was primarily to housing and utilities.

The upward adjustment in residential fixed investment was mainly  attributed to single family housing. On the nonresidential side there  were downward revisions to equipment and intellectual property  products,  partially offset by and upward revision to nonresidential structures.

For inventories, there were downward adjustments in construction, mining, utilities and manufacturing.

Some highlights: personal consumption expenditures rose an upward revised 2.8% in the third quarter, a deceleration from the 4.3% rise in the second quarter but better than the 1.6% gain in the first quarter, and higher than expected.  The increase reflected an increase in consumer spending on household services, notably on housing and utilities. Consumer spending on durable goods also increased, notably on motor vehicles and parts. However, spending on nondurable goods declined.

Exports of goods increased, notably in foods, feeds, and beverages and in consumer durable goods. Exports of services increased, mainly in travel. In addition, private inventory investment and federal government spending increased. Offsetting these contributions to growth, housing investment and state and local government spending declined.

Overall the picture remained the same, with acceleration in private inventory investment, exports and federal government spending along with smaller decreases in state/local govt spending and a  deceleration in nonresidential fixed investment.

One notable highlight in the report was that corporate profits increased 6.6% at a quarterly rate in the third quarter after decreasing 0.6% in the second quarter. This was the highest print in over three years, approaching the nearly 8% increase in Q2 2013.

Profits of domestic nonfinancial corporations increased 6.5% after decreasing 4.6%, a surprising swing higher. Profits of domestic financial corporations rose 11.5% after rising 1.3 percent. Profits from the rest of the world increased 1.6% after increasing 10.3%. Over the last 4 quarters, corporate profits increased 2.8%.