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US Q3 GDP revised downward to 2 per cent on falling corporate profits

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 22, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Mumbai) - The Commerce Department today reported the US Gross domestic product grew at a 2.0 per cent annual pace, lower than the second estimate’s 2.1 per cent growth. The figure is much lower than the 3.9 per cent growth registered in the April-June period. Economists polled by Reuters had forecast third-quarter GDP growth revised down to a 1.9 per cent rate.

    When measured from the income side, the economy grew at a 2.7 per cent pace. The poor figures reflect downward revisions to corporate profits. Corporate profits after tax fell at a 1.7 per cent rate in the third quarter. Profits, hurt by strong dollar and lower oil price, were down 8.2 per cent from a year ago as compared to the previously estimated 8.1 per cent drop. Overall investment suffered a setback. The oil price slump hurt oil firms and forced them to cut investment.

    The month on month changed in inventories resulted in subtraction of 0.71 per cent from the third-quarter GDP growth as against the 0.59 per cent deducted from the GDP earlier. $85.5 billion worth of inventory was noted in the third quarter compared to $90.2 billion reported in November.

    Increase in inventories is proof that merchandise lie unsold. This has led businesses lose their interest to restock. Despite several efforts to offload stockpiles, inventories remain high and will likely weigh on growth in the fourth quarter as well.

    Consumer spending grew at a 3.0 per cent rate in the third quarter as had been previously estimated. Strengthening labor market and rising home values have lent support to spending in this quarter. Growth in business spending on equipment was also raised to a 9.9 per cent rate from a 9.5 per cent pace.

    Exports growth which has been hurt by the strong dollar and sluggish global demand were revised downward. Exports growth showed a slower 0.7 per cent rate of increase. On the other hand imports increased leading to the widening deficit to subtract 0.26 per cent point from GDP growth.
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