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John Lindner |

Research Analyst

John Lindner

John Lindner is a former research analyst in the Research Department of the Federal Reserve Bank of Cleveland.

11.25.09

Economic Trends

Real GDP: Third-Quarter 2009 Second Estimate

John Lindner

Third-quarter GDP was revised down in the second estimate, as the annualized growth rate dropped from 3.5 to 2.7 percent, which was close to consensus expectations. The four-quarter growth rate fell 0.2 percentage point (pp), back to -2.5 percent. The downward revision was largely driven by a 4.5 pp increase in imports and by decreases in personal consumption and fixed investment. These losses were somewhat offset by a positive revision to exports, which added 2.3 pp to annualized growth. Another improvement could be seen in government spending, which went from 2.3 percent in the advance estimate to 3.1 percent in this revision. On the negative side, the second- to third-quarter movement of business fixed investment, from −9.6 percent to −2.5 percent lost some of its luster when it was revised to −4.1 percent. Personal consumption followed a similar pattern, as its apparent gains from the second to the third quarter were lowered by 0.5 pp.

Real GDP and Components, 2009:Q3 Second Estimate

Quarterly change,
billions of 2005 $
Annualized percent change, last:
Quarter
Four quarters
Real GDP
88.8
2.5
−2.5
Personal consumption
67.0
2.9
−0.1
  Durables
50.3
20.1
−1.5
  Nondurables
8.4
1.7
−0.8
  Services
14.9
1.0
0.4
Business fixed investment
−13.5
−4.1
−19.3
  Equipment
5.0
2.3
−17.7
  Structures
−16.1
−15.2
−22.1
Residential investment
15.7
19.5
−18.8
Government spending
19.6
3.1
2.0
  National defense
15.0
8.9
5.2
Net exports
−27.6
  Exports
56.9
17.0
−10.8
  Imports
84.6
20.8
−14.1
Private inventories
−133.4

Source: Bureau of Economic Analysis.

Personal consumption remained the largest contributor to the growth in real GDP, adding 2.1 pp, though this was revised down slightly from the advance estimate of 2.4 pp. Other large revisions were in exports and imports. Net exports (which subtract from real growth) went from 0.5 pp to 0.8 pp. The change to the imports estimate (an extra 0.5 pp subtraction in GDP accounting) outweighed the increase in the exports estimate (a 0.2 pp addition). Residential investment, business fixed investment and changes in inventories all took an extra 0.1 pp from real growth after revisions, while government spending added an extra 0.1 pp.

The Blue Chip consensus forecast for 2009 real GDP growth improved again, from −2.5 to −2.4 percent in the November survey, despite the expected downward revisions to the third-quarter estimate. This change can be traced to the improved consensus forecast for the fourth quarter, which jumped from 2.4 to 2.8 percent. The consensus estimate for 2010 growth ticked up again as well, this month by 0.2 pp, to 2.7 percent, its sixth upward revision in seven months, though that estimate still remains below real GDP’s long-run trend. Looking ahead, even pessimists are predicting GDP growth of over 1.5 percent for the rest of this year and into 2010.

Released alongside the GDP revision was the preliminary estimate of third-quarter profits. In total, profits rose for the third straight quarter, gaining 10.6 percent in the third quarter. Over 90 percent of the increase has been attributed to profits from financial corporations. There were also gains in nonfinancial firms for a second straight quarter, but they were small. Nonetheless, such an increase in profits is typically accompanied by a lagged increase in investment. Fiscal and monetary stimulus has boosted demand, while the weakening dollar has made exports more appealing. Expectations for the future are likely to include a return to positive growth of fixed investment, which will add to real GDP growth, though such an outcome could be hampered by the uncertainty of the current recovery. Profits may be conserved until investments appear less risky and the economy returns closer to full employment.