Some Thoughts on Q3 US GDP

The US economy now is estimated to have
expanded by 3.2% in Q3, up from the initial estimate of 2.9%, and is the fasted
in since Q3 2014.
  The average quarterly growth rate this year is 1.8%
compared with 1.9% last year.  The Federal Reserve estimates trend growth or the long-term sustainable pace is
1.8%.  Growth this quarter is looking to be above trend.  

Growth was revised high primarily because of
better consumption (2.8% instead of 2.1%).
  Consumption is fueled by income and wages and salaries rose
by $110.2 bln from Q2.  Initially,
they were only estimated to have risen by $56 bln.  

Residential investment, which includes
materials as well as structures, was a smaller drag than initially thought.
Rather than fall 6.2% at an annualized rate, it fell by 4.4%.   The
$17 bln increase in inventories was the first time stocks added to growth since
early 2015, signaling that the inventory
cycle may be over.  Net exports were a little more of a contributor to
growth.  It added 0.87 percentage points to GDP rather than 0.83 initially
estimated.  The surge in soybean exports may not be repeated, and the growth differentials warn of widening pressure
on the US trade deficit.  

Business investment was poor.  It
fell 4.8% at an annualized rate.  The initial estimate pointed to a 2.7%
decline.  It fell my a little more in Q2.  Investment shaved Q3 GDP
by about 0.28 percentage points.  Early indications suggest investment may
be strengthening due developments in the energy patch.  

For the first time, an estimate for corporate
profits was reported.
taxes, profits rose 6.6% after falling 0.6% in Q2.  The year-over-year
pace was 2.8%, snapping a five-quarter decline.  Of note, this included an
11.5% surge in domestic financial profits.  Net income for the US
commercial banks and savings institutions rose 13% to reach a record as profits
increased and expense eased.   

There are nearly 6000 banks that are insured
by the FDIC.
  Their net income rose $5.2 bln to $45.6 bln in Q3,
according to FDIC data.  Net interest income rose $10 bln  (9.2%
year-over-year) and a $1.2 bln  (1.9%) rise in noninterest income.  More
than half the US banks reported year-over-year growth and less than 5% of the
banks were unprofitable, which is the lowest percentage since Q3 1997. 
The number of banks on the FDIC’s “problem list” stands at 132, down
from 147 a year ago. Lastly, US banks boosted their loan-loss provisions by a
third or $2.9 bln.  

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