Washington, D.C., USA: Reflecting downward revisions to consumer spending and exports, the Commerce Department released a report on Friday showing slightly slower than previously estimated U.S. economic growth in the third quarter.
The report said real gross domestic product surged up by 3.4 percent in the third quarter compared to the previously estimated 3.5 percent jump. The pace of GDP growth had been expected to be unrevised.
The increase in consumer spending, which accounts for about 70 percent of the economy, was downwardly revised slightly to 3.5 percent from 3.6 percent.
Revised data also showed exports plummeted by 4.9 percent in the third quarter after surging up by 9.3 percent in the second quarter.
The Commerce Department said the downward revisions to consumer spending and exports were partly offset by an upward revision to private inventory investment, resulting in a general picture of economic growth that remains the same.
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The downwardly revised GDP growth in the third quarter compares to the 4.2 percent spike in the second quarter, with the slowdown reflecting the downturn in exports and decelerations in non-residential fixed investment and consumer spending.
The report also showed a rebound in imports, which are a subtraction in the calculation of GDP, although the movements were partly offset by an upturn in private inventory investment.
Looking ahead, Andrew Hunter, Senior U.S. Economist at Capital Economics, said, “As things stand, growth looks to have slowed in the fourth quarter, albeit to a still-healthy pace of about 2.8%.”
On the inflation front, the Commerce Department said its reading on core consumer prices, which exclude food and energy prices, showed price growth slowed to 1.6 percent in the third quarter from 2.1 percent in the second quarter.
U.S. stocks opened slightly higher on Friday after encouraging economic data, but were still pressured by worries over slowing global growth and the threat of a U.S. government shutdown.
The Dow Jones Industrial Average rose 12.14 points, or 0.05 percent, at the open to 22,871.74. The S&P 500 opened lower by 2.04 points, or 0.08 percent, at 2,465.38. The Nasdaq Composite gained 45.08 points, or 0.69 percent, to 6,573.49 at the opening bell.
GDP q/q primer
Current-dollar estimates are valued in the prices of the period when the transactions occurred—that is, at “market value.” Also referred to as “nominal estimates” or as “current-price estimates.”
Real values are inflation-adjusted estimates—that is, estimates that exclude the effects of price changes.
The gross domestic purchases price index measures the prices of final goods and services purchased by U.S. residents.
The personal consumption expenditure price index measures the prices paid for the goods and services purchased by, or on the behalf of, “persons.”
Profits from current production, referred to as corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj) in the NIPAs, is a measure of the net income of corporations before deducting income taxes that is consistent with the value of goods and services measured in GDP.
The IVA and CCAdj are adjustments that convert inventory withdrawals and depreciation of fixed assets reported on a tax-return, historical-cost basis to the current-cost economic measures used in the national income and product accounts. Profits for domestic industries reflect profits for all corporations located within the within the geographic borders of the United States.
The rest-of-the-world (ROW) component of profits is measured as the difference between profits received from ROW and profits paid to ROW.
Gross domestic product (GDP)
Gross domestic product (GDP) is the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production. GDP is also equal to the sum of personal consumption expenditures, gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment.
Gross domestic income (GDI)
Gross domestic income (GDI) is the sum of incomes earned and costs incurred in the production of GDP. In national economic accounting, GDP and GDI are conceptually equal. In practice, GDP and GDI differ because they are constructed using largely independent source data. Real GDI is calculated by deflating gross domestic income using the GDP price index as the deflator, and is therefore conceptually equivalent to real GDP.
Why Markets Care About GDP q/q
GDP quarterly change (GDP q/q) measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy.
It is released quarterly by the Bureau of Economic Analysis of the Commerce Department about 85 days after the quarter ends
The usual effect is that is ‘Actual’ greater than ‘Forecast’, the report is considered good for the dollar and vice versa.
While this is q/q data, it’s reported in an annualized format (quarterly change x4). There are 3 versions of GDP released a month apart – Advance, Preliminary, and Final. The Advance release is the earliest and thus tends to have the most impact;
BEA releases three vintages of the current quarterly estimate for GDP: “Advance” estimates are released near the end of the first month following the end of the quarter and are based on source data that are incomplete or subject to further revision by the source agency; “second” and “third” estimates are released near the end of the second and third months, respectively, and are based on more detailed and more comprehensive data as they become available.
Gross Domestic Product (GDP) q/q is the broadest measure of economic activity and the primary gauge of the economy’s health.