Q3 GDP Revised to 2.6%

The government revised its estimate for the third-quarter to 2.6%. The initial report was 2%. Then last month, it was revised to up to 2.5%. The only hitch with today’s revision is that Wall Street was expecting a revision to 2.8%.

Growing incomes, the continuation of Bush-era tax cuts and an improving labor market may encourage Americans to boost their spending, which accounts for about 70 percent of the world’s largest economy. Today’s figures showed a measure of inflation rose at the slowest pace in more than 50 years, underscoring the Federal Reserve’s strategy of extending record monetary stimulus.

Today’s data set the stage for “a stable pace of growth” in 2011, said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. The lack of “inflation does remain the biggest downside risk to the U.S. economy” and GDP expansion at this rate “is not enough to move unemployment meaningfully,” he said.

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Inventory Growth

A bigger gain in inventories added more to growth than the Commerce Department estimated last month.

The need to restock inventories, a major driver of the economic recovery, may diminish in coming months as companies try to keep stockpiles more in line with demand. The value of unsold goods rose $121.4 billion in the third quarter, up from a previously reported $111.5 billion.

The trade gap was revised to $505 billion from $506.7 billion, today’s report showed. The deficit subtracted 1.7 percentage points from growth.

Excluding trade and inventories, a measure of underlying demand, the economy would have grown at a 2.6 percent annual rate after expanding 4.3 percent in the second quarter. The Commerce Department last month estimated a 2.9 percent pace of so-called final sales to domestic purchasers in the third quarter.

Corporate Investment

Corporate spending on new equipment as well as export demand will support production. Business purchases of equipment and software rose at a 15.4 percent pace last quarter, revised from 16.8 percent and following a 24.8 percent jump for the second quarter that was the biggest in 27 years. Spending on structures including office buildings and factories fell 3.5 percent.

“We have seen now an extended period of time of recovery in the components business,” Paul Reilly, chief financial officer of Arrow Electronics Inc., said earlier this month at a conference in New York. Melville, New York-based Arrow is a distributor of electronic components and computer products to industrial customers.

Corporate profits increased 1.6 percent, revised from the 2.8 percent gain estimated last month, today’s report showed. They were up 26 percent from the same period a year earlier.

Posted by on December 22nd, 2010 at 12:53 pm


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