Wednesday, November 29, 2023

Higher GDP, higher profits, higher incomes, and moderate inflation. The US in Q3

What was already a big number for the US economy in the 3rd quarter ended up being even bigger today.
Gross domestic product increased at a 5.2% annualized rate last quarter, revised up from the previously reported 4.9% pace, the Commerce Department's Bureau of Economic Analysis (BEA) said in its second estimate of third-quarter GDP. It was the fastest pace of expansion since the fourth quarter of 2021.

Economists polled by Reuters had expected GDP growth would be revised up to a 5.0% rate. The economy grew at a 2.1% pace in the April-June quarter and is expanding at a pace well above what Federal Reserve officials regard as the non-inflationary growth rate of around 1.8%.

The upward revision to growth reflected upgrades to business investment on structures, mostly warehouses and healthcare facilities. Spending by state and local governments was also revised higher. Residential investment was also raised, thanks to the construction of more single-family homes, helping to end nine straight quarters of contraction.
Big stuff on the topline, and today’s GDP release had a couple of other interesting tidbits in it. One involves 3rd quarter income going up by even more than before.
Current-dollar personal income increased $218.3 billion in the third quarter, an upward revision of $18.8 billion from the previous estimate. The increase in the third quarter primarily reflected increases in compensation (led by private wages and salaries), nonfarm proprietors’ income, and personal interest income that were partly offset by a decrease in personal current transfer receipts.

Disposable personal income increased $144.0 billion, or 2.9 percent, in the third quarter, an upward revision of $48.2 billion from the previous estimate. Real disposable personal income increased 0.1 percent, an upward revision of 1.1 percentage points.
We'd seen real disposable income decline in the last few months, so this report indicates that we should expect to see sizable upward revisions in tomorrow’s Income and Spending report.

We also got the first release of 3rd quarter profits, which jumped and got back near its record levels of mid-2023.
Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $105.7 billion in the third quarter, compared with an increase of $6.9 billion in the second quarter (table 10).

Profits of domestic financial corporations increased $18.8 billion in the third quarter, in contrast to a decrease of $54.2 billion in the second quarter. Profits of domestic nonfinancial corporations increased $76.2 billion, compared with an increase of $39.0 billion. Rest-of-the-world profits increased $10.7 billion, compared with an increase of $22.1 billion. In the third quarter, receipts increased $17.4 billion, and payments increased $6.7 billion.

However, don't count on the robust 5.2% growth holding up for the rest of the year, as the Federal Reserve came out today and indicated that growth is not likely to be as good to end 2023.
The economic outlook soured on slowing growth in recent weeks as consumers are keeping a closer on spending amid an easing in the labor market as well as in the pace of inflation, according to the Federal Reserve's Beige Book released Wednesday.

Economic activity slowed since the previous report, with retail sales declining, on average, as "consumers showed more price sensitivity," the Fed said in its Beige Book economic report, based on anecdotal information collected by the Fed’s 12 reserve banks through Nov. 17. "The economic outlook for the next six to twelve months diminished over the reporting period," it added.

The more somber economic outlook comes as the demand for labor continued to ease, with wage growth remaining modest to "moderate in most Districts," according the report, though there continued to be "difficulty attracting and retaining high performers and workers with specialized skills."

The pace of inflation "largely moderated" across districts, though prices remained elevated, the report showed, with a notable rise in utilities and insurance costs across most districts. Most districts, however, expect moderate price increases to continue into next year, the report added.
While growth might not be 5% or even 3%, that also doesn't sound like anything resembling a recession, and moderate inflation and growth isn't a bad way forward when unemployment is still under 4% in the country.

As mentioned earlier, let's see if tomorrow's income and spending report has the upward revisions that today's GDP report hinted at. And if so, let's see how much growth might be slowing from the torrid Q3 we had.

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