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While it’s a remnant of a distant pass and will have zero impact on today’s markets which are much more focused on slowing economic growth in 2022, moments ago the BEA reported the second estimate of Q3 GDP and it printed at 2.3% (2.290% to be precise), higher than both the previous estimate of 2.1% and the consensus forecast of 2.1%. GDP rose at a 6.7% annualized rate in Q2, so a slowdown but not as bad as previously expected.

The update primarily reflects upward revisions to consumer spending and inventory investment that were partly offset by a downward revision to exports. Imports, a subtraction in the calculation of GDP, were revised down. Here are the details:

  • Personal consumption added 1.35% to the bottom line GDP print, up from 1.18% previously
  • Fixed investment subtracted -0.16%, less than the -0.20% prior
  • Change in private inventories also boosted GDP modestly, rising from 2.13% in the first estimate to 2.20% currently.
  • Net exports were a bigger drag than previously expected, subtracting -1.27%, more than the -1.16% prior, due to a greater drag from exports (-0.59% vs -0.33% previously) while imports were a smaller drag at -0.68% vs -0.83% prior.
  • Government contribution to the bottom line GDP was flat at 0.17%, virtually unchanged from 0.16% last.

Of these, the biggest surprise was the increase in personal consumption which rose 2.0% annualized, more than the 1.7% expected.

On the inflation front, the GDP price index rose 6.0% in 3Q after rising 6.1% prior quarter – this was the highest print in almost 40 years; The deflator came in at 5.9%, in line with expectations.

Core PCE q/q rose 4.6% in 3Q after rising 6.1% prior quarter; it came just above the 4.5% expectation.

Looking at corporate profits, these rose 10.5% in the prior quarter; y/y corp. profits are up 19.7% in 3Q after rising 45.1% prior quarter. Financial industry profits increased 2.6% Q/q in 3Q after rising 10.9% prior quarter. Federal Reserve bank profits were up 12.5% in 3Q after rising 36.4% prior quarter, while nonfinancial sector profits rose 1.7% Q/q in 3Q after rising 13.8% prior quarter.

Finally, today’s release includes estimates of GDP by industry, or value added—a measure of an industry’s contribution to GDP. Private goods-producing industries decreased 5.5 percent, while private services-producing industries increased 3.9 percent, and government increased 5.1 percent. Overall, 14 of 22 industry groups contributed to the third-quarter increase in real GDP.

  • The decrease in private goods-producing industries was widespread, led by construction.
  • The increase in private services-producing industries primarily reflected increases in professional, scientific, and technical services; finance and insurance (led by securities, commodity contracts, and investments); accommodation and food services; administrative and waste management services (led by administrative and support services); and information (led by motion picture and sound recording industries).
  • The increase in government primarily reflected an increase in state and local government

Don’t expect any of this news to move markets: after all, what happened in the third quarter is distant past. The question now is what happens next year now that the fiscal stimulus from the Biden’s Build Back Better program isn’t coming.

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