Third Estimate 3Q2015 GDP Revised Slightly Down. Corporate Profits Down

Written by Doug Short and Steven Hansen

The third estimate of second quarter 2014 Real Gross Domestic Product (GDP) was revised marginally downward to 2.0 %. This “decline” was mainly due to private inventories decreasing more than previously estimated.

The market expected:

Seasonally Adjusted Quarter-over-Quarter Change at annual rate Consensus Range Consensus Advance Actual 2nd Estimate Actual 3rd Estimate Actual Real GDP 1.7 % to 2.2 % +2.0 % +1.5 % +2.1 % +2.0 % GDP price index 1.3 % to 1.3 % +1.3 % +1.2 % +1.3 % +1.3 %

Headline GDP is calculated by annualizing one quarter’s data against the previous quarters data (and the previous quarter was relatively strong in this instance). A better method would be to look at growth compared to the same quarter one year ago. For 3Q2015, the year-over-year growth is 2.1 % – significantly down from 2Q2015’s 2.7 % year-over-year growth. So one might say that GDP decelerated 0.6 % from the previous quarter.

Real GDP Expressed As Year-over-Year Change

This third estimate released today is based on more complete source data than were available for the “second” estimate issued last month. (See caveats below.)

Real GDP is inflation adjusted and annualized – the economy declined on a per capita basis.

Real GDP per Capita

The table below compares the 2Q2015 third estimate of GDP (Table 1.1.2) with the advance, second and third estimate of 3Q2015 GDP which shows:

consumption for goods and services declined.

trade balance degraded

there was significant inventory change removing 0.7 % from GDP

there was slower fixed investment growth

there was little change in government spending

The arrows in the table below highlight significant differences between the second and third estimates (green is good influence, and red is a negative influence).

[click on graphic below to enlarge]

What the BEA says about the third estimate of GDP:

Real gross domestic product — 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, adjusted for price changes — increased at an annual rate of 2.0 percent in the third quarter of 2015, according to the “third” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.9 percent.

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, state and local government spending, residential fixed investment, and exports that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the third quarter primarily reflected a downturn in private inventory investment and decelerations in exports, in PCE, in nonresidential fixed investment, and in state and local government spending that were partly offset by a deceleration in imports.