Third-Quarter GDP Revised to +2.5%

This is some good news. The GDP report for the third quarter was revised higher from the initial report of 2% growth to 2.5% growth. The good news is that this was higher than Wall Street’s consensus of 2.4% growth. The downside is that 2.5% is right about the rate the economy needs to grow in order to absorb new workers.

In other words, the good news is that we’re standing still. At least we’re not where we were, which was falling backwards very quickly.

The revised increase in gross domestic product compares with a 2 percent estimate issued last month and a 1.7 percent rise in the second quarter, figures from the Commerce Department showed today in Washington. Corporate profits grew last quarter at a slower pace and an increase in employee wages in the prior three months was almost twice as much as initially reported.

While gains in earnings are giving companies the wherewithal to hire, the pace of growth is failing to bring down a jobless rate hovering near 10 percent. Unemployment along with a cooling of inflation as retailers such as Wal-Mart Stores Inc. reduce prices underscore the Federal Reserve’s decision to inject more money into the economy.

“This is still, by the standards of history, only a half- speed expansion,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto, who correctly forecast the revised increase in GDP. Inflation “is very tame and 2.5 percent growth is not fast enough to put Americans back to work by any extent.”

Today’s figures showed bigger gains in exports, consumer spending and business investment in new equipment than previously estimated.

An interesting tidbit is that corporate profits are now at the highest level ever recorded.

The nation’s workers may be struggling, but American companies just had their best quarter ever.

American businesses brought in $1.66 trillion at an annual rate in the third quarter, according to a Commerce Department report released Tuesday. That is the highest figure recorded since the government began keeping track over 60 years ago, at least in nominal or non-inflation-adjusted terms.

Corporate profits have been going gangbusters for a while. Since their cyclical low in the fourth quarter of 2008, profits have grown for seven consecutive quarters at some of the fastest rates in history.

This breakneck pace can be partly attributed to strong productivity growth — which means companies have been able to make more with less — as well as the fact that some of the profits of American companies come from abroad. Economic conditions in the United States may still be sluggish, but many emerging markets like India and China, are expanding rapidly.

See that teeny little crook at the end of the chart? That’s what all the Double Dip fuss was about this summer. Yes, that’s all it was.

Posted by on November 23rd, 2010 at 8:49 am


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