Real GDP (Q3-2023, second estimate)

Q3 GDP revised higher, while corporate profits sharply accelerate

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• The Bureau of Economic Analysis' second estimate of Q3-2023 real GDP was revised 0.3 percentage points (pp) higher to 5.2% quarter-over-quarter (q/q, annualized).

• Consumer spending advanced by 3.6% – a modest downward revision from the 4.0% gain reported in the advance estimate. Healthy gains in spending were seen across both goods (+4.7%) and services (+3.0%).

• Business fixed investment expanded by 1.3% – an upgrade from the near flat reading previously reported – with the revision largely concentrated in non-residential structures (+6.9% from 1.6%). Meanwhile, equipment spending fell by 3.5%, while intellectual property products expanded by 2.8%.

• Residential investment rose by 6.2%, snapping what had been nine consecutive quarters of declines.

• Government spending expanded by a robust 5.5% (up from the previously reported 4.6% gain) and added nearly a full percentage point to third quarter growth. Gains were seen across both federal (+7.0%) and state & local (+4.6%) spending.

• Inventory investment added a meaningful 1.4 pp to GDP, while net trade had no overall impact as a strong gain in exports (+6.0%) was completely offset by a slightly smaller rise in imports (+5.2%).

• Real Gross Domestic Income rose by 1.5% in the third quarter, an acceleration from the downwardly revised gain of 0.5% (previously 0.7%) in Q2. Corporate profits were meaningfully higher, rising by 14.0% (annualized) or $105.6 billion after accounting for inventory valuation and capital consumption adjustments. Personal income rose by a healthy 3.9%, largely unchanged from Q2's gain.

  • Measured as a share of nominal GDP, corporate profits inched higher by 0.2 pp to 11.9% and remain slightly above the 2018-2019 average of 11.5%.

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• At the beginning of 2023, most forecasters expected the U.S. economy to be contracting or at least slowing through the second half of this year. Instead, Q3 growth expanded at a pace that was more than double the previous quarters' rate of growth, and well above what most believe to be the economy's underlying potential growth rate of 1.8%.

• While we expect growth to downshift in the fourth quarter, our current tracking still has the U.S. economy expanding by 1.8% to round out the year. The Atlanta Fed's GDPNow tracking is even stronger at 2.1%. These numbers are inconsistent with returning price stability and could require a further tightening in the policy rate unless we see a more decisive slowing in economic activity through early-2024.