–Q3 GDP Real Final Sales a Modest +1.9%; Unemply Clms are for TG Week

By Joseph Plocek

WASHINGTON (MNI) – The latest data show holiday and hurricane
effects on unemployment claims, as well as the expected upward revision
to Q3 GDP, but with the twist of slower final sales. Both reports should
be interpreted carefully because Q4 real growth seems to have slowed.

Real GDP was revised up an unusually large 0.7 point to +2.7% in
the second estimate for Q3, but real final sales are now just +1.9%, a
little slower than in the initial estimate.

The GDP report included the expected upward revisions to
inventories and exports based on better source data. But these were
offset in part by weaker consumer spending and worsening nonresidential
investment.

Specifically, new Energy Department data showed weaker car lube and
fuels spending, call reports showed lessened insurance and banking fees
(these are imputed using costs based on low interest rates), and there
was weaker electricity/gas usage. There was also less spending on trucks
used in deliveries and less software and computer investment.

The revisions suggest GDP has a weaker composition, and this
weakens momentum into Q4. In addition, Hurricane Sandy could cut Q4
growth a little via business disruptions. Revisions to wages, made to
include bonus and stock option income, cut about $31.9 billion from Q2
income, another factor that weakens the outlook.

Still, the Commerce Department noted that consumption, inventories
and federal spending all gave good positive contributions to Q3 growth.

GDP prices printed +2.7% in Q3.

Corporate profits from current production increased $67.3 billion
(+3.5%) in Q3 after +$21.8 billion in Q2, with more domestic profits and
a lesser contribution from abroad. Profits were +$106.6 billion pretax,
as bank profits jumped.

GDP Components: Q3 Q4:11 Q1:12 Q2 Q3 prelm Q3 rev
Real growth +1.3% +4.1% +2.0% +1.3% +2.0% +2.7%
Real final sales +2.3 +1.5 +2.4 +1.7 +2.1 +1.9
PCE +1.7 +2.0 +2.4 +1.5 +2.0 +1.4
Nonres fixed invest +19.0 +9.5 +7.5 +3.6 -1.3 -2.2
Res fixed invest +1.4 +12.1 +20.5 +8.5 +14.4 +14.2
Net Exprt Contrib add 0.02 cut 0.64 add 0.06 add 0.23 cut 0.18 add 0.14
Inventory Contrib cut 1.07 add 2.53 cut 0.39 cut 0.46 cut 0.12 add 0.77

In a separate report released at the same time, the Labor
Department said Initial Unemployment Claims printed -23,000 to 393,000
in the November 24 week. An analyst said there was nothing unusual in
the data, and the number printed close to expectations.

However, claims have a number of distorting factors at work that
make them a less desirable analytical tool than usual. These include a
possible continued decline after the hurricane-induced surge in early
November, and the fact that the current week included the Thanksgiving
holiday which typically marks the start of a period of volatile readings
(this usually involves a dip for the holiday, followed by a rebound,
neither of which typically is captured well in the seasonal
adjustments).

Claims averaged 372,000 in the four weeks ending November 3. But
they have been elevated since, reflecting the hurricane’s effects. The
latest four-week average is 405,000.

Continuing unemployment claims fell 70,000 in the November 17 week
(the payroll survey period) to 3.287 million. These have been on a
downtrend for two years. Continuing claims were 3.259 million in
mid-October, little changed from the current reading.

**MNI Washington Bureau: (202)371-2121**

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