Economy Grows More Than First Estimated on U.S. Stockpiles
Gross domestic product, the value of all goods and services produced, rose at a 2.1% annualized rate, up from an initial estimate of 1.5%, Commerce Department figures showed Nov. 24 in Washington. The report also showed corporate profits slumped while worker incomes jumped.
The consumer continues to power the U.S. economy, with cheap gasoline giving households the means and greater job security giving them the confidence to spend. Still, company stockpiles remained elevated compared with sales, indicating that new orders and production will cool further to clear shelves and warehouses heading into 2016.
“Inventory levels still have to come down, and that’s going to put pressure on the fourth quarter,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, who correctly forecast the GDP revision. “Consumers are still doing very well.”
The rate of growth matched the median forecast of economists surveyed by Bloomberg. Estimates ranged from 1.5% to 2.4%. The GDP figure is the second of three for the quarter, with the other release scheduled for late December when more information can be incorporated.
The economy grew at an average 2.3% pace in the first half of the year as a 3.9% surge in the second quarter more than made up for a first-quarter slowdown caused by bad weather, a labor dispute at West Coast ports and weakness in the energy industry.
The revisions to third-quarter GDP showed the pickup in growth estimates last quarter was concentrated in stockpiles. Inventories grew at a $90.2 billion annualized rate from July through September, almost twice as much as previously estimated. Still, the slowdown in stockpiling from the second quarter, when it grew at a $113.5 billion rate, reduced growth by 0.6 percentage point. That compared to a previously reported drag of 1.4 points.
Inventories climbed earlier this year as weak growth abroad and a stronger dollar left manufactured goods to pile up in the United States, O’Sullivan said. Bloated stockpiles bolster the headline growth figure, while a drag on GDP occurs as companies trim those inventories to match demand.
Household consumption, which accounts for almost 70% of the economy, grew at a 3%annualized rate, less than the previously estimated 3.2%.
The good news for consumers is that incomes are picking up. Wages and salaries rose by $102.7 billion in the third quarter following a $109.4 billion gain in the April through June period that was almost $62 billion larger than previously estimated.
After-tax total personal incomes adjusted for inflation climbed 3.8% in the third quarter from the same time in 2014, the biggest year-to-year gain since the end of 2012. That helped push the savings rate up to 5.2% from 5% in the second quarter, indicating consumers have plenty of cash to spend for the holidays.
The Nov. 24 report also offered a first look at corporate profits. Pretax earnings dropped 1.1% in the third quarter after a 3.5% gain in the previous period. The decrease reflected a $30 billion slump in profits from affiliates overseas that was the biggest since the height of the financial crisis at the end of 2008.
Corporate earnings were down 4.7% from the same time last year, the largest 12-month drop since the second quarter of 2009.
Last quarter’s growth reading was at odds with data on total earnings. Gross domestic income, which reflects all the money earned by consumers, businesses and government agencies, climbed at 3.1% rate from July through September following a revised 2.2%advance in the second quarter that was stronger than previously estimated.
Although GDP and GDI should theoretically match, they can diverge in the short run because they are derived from different sources. For that reason, the government began issuing a new measure tracking the average of the two, which showed a 2.6% gain after a 3% advance in the second quarter.
Steady growth in the world’s largest economy is helping to create jobs and push down the unemployment rate, which Federal Reserve policy makers are watching as a gauge of how much slack is left in the labor market. Fed officials are considering raising their benchmark interest rate as soon as next month, should data continue to indicate that the U.S. economy can withstand tighter monetary policy.
