GDP revised downward; corporate profits up


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The U.S. economy grew more slowly than previously thought in the three months ending Sept. 30, the Bureau of Economic Analysis said, revising the nation’s third-quarter gross domestic product downward to annualized growth of 2% from its previous estimate of 2.5%.

Although the downward revision indicates that the economy isn’t doing quite as well as economists had hoped, the numbers are still better than the second quarter’s meager growth of 1.3%. But the sluggish growth still leaves the economy on uncertain footing as debt woes in Europe and in Washington continue.


‘We expect the rate of economic growth to weaken in the current quarter, and the situation may deteriorate further if uncertainty arising from the super committee budget discussions and the debt crisis in Europe continue to adversely affect both business and consumer confidence in the US and its major export markets,’ Chris Williamson, chief economist at Markit, a British research firm, wrote in a note to reporters.

Even as the economy continued to limp along, corporate profits increased in the quarter. Domestic profits of financial corporations increased $16 billion in the third quarter, in contrast to a decrease of $54.2 billion in the second. Domestic profits of non-financial corporations increased $17.4 billion in the third quarter, compared with an increase of $80.8 billion in the second.

There were some bright spots in the GDP report. Consumer spending rose 2.3% in the quarter, after second-quarter growth of just 0.7%. Exports, a key piece of President Obama’s growth strategy, grew by 4.3% in the quarter, and imports increased just 0.5%.

But inventories provided the biggest hit to GDP growth. Private businesses decreased their inventories by $8.5 billion in the third quarter, after growing them $39.1 billion the second quarter and $49.1 billion in the first. Though the numbers were bad news, those inventory reductions could lead up to a large leap in inventories in the fourth quarter, setting up a rebound.

The overall GDP numbers trend with a forecast from major economists who predict that the economy will grow slowly this year and next, with little chance for a recession but also little chance for fast growth. The NABE Outlook Survey predicts a 2.5% growth rate throughout 2011, slowing slightly to 2.4% in 2012.

The economists said that corporate profits would continue to grow, but that consumer spending would grow more slowly than usual.



Corporate profits increase as GDP remains sluggish

U.S. recession fears fade as economy shows more strength

-- Alana Semuels