US Economy Weaker In 3Q Than First Thought

The U.S. economy was a little softer during the third quarter than first believed, according to government data Tuesday showing weaker consumer spending and overseas sales. Gross domestic product dropped at a seasonally adjusted 0.5% annual rate July through September, the Commerce Department said in a new, revised estimate of third-quarter GDP. It was the weakest performance since a 1.4% decrease in third-quarter 2001 GDP. Originally, the government had estimated third-quarter 2008 GDP fell 0.3%. Second-quarter 2008 GDP climbed 2.8%.

Corporate profits kept retreating in the third quarter. Profits after taxes fell by 3.0% to $1.302 trillion, after sliding 0.4% in the second quarter and 7.7% during the first quarter. Year over year, profits were down 9.9%. Price inflation gauges were lowered in the government's revisions to the economic data. GDP is a measure of all goods and services produced in the economy. Wall Street expected a slightly bigger adjustment; economists surveyed by Dow Jones Newswires had called for a 0.6% decrease in revised third-quarter GDP. The data revisions showed third-quarter spending by consumers dropped 3.7%. That was down from a previously reported 3.1% decrease; it was also below the second quarter's 1.2% increase. Consumer spending accounts for about 70% of economic activity. The 3.7% decrease took 2.69 percentage points from GDP in the third quarter; the original estimate was a reduction of 2.25 percentage points. Purchases of durable goods tumbled 15.2% in July through September, below the previously reported 14.1% drop and below the decrease of 2.8% in the second quarter. Durable goods are expensive items designed to last at least three years, such as cars.

Third-quarter non-durables spending fell by 6.9%. Services spending was flat.

Trade gave less to the economy than first estimated. Imports dropped 3.2% instead of the originally reported 1.9% decrease. Exports were revised down, rising 3.4% instead of rising 5.9%. Trade boosted GDP by 1.07 percentage points in the third quarter. Originally, trade was seen contributing 1.13 percentage points to GDP.

Businesses decreased spending more than previously thought. Outlays fell by 1.5% July through September, which was bigger than the originally estimated 1.0% decrease. Business spending rose 2.5% in the second quarter. Third-quarter investment in structures increased 6.6%; equipment and software fell 5.7%. Residential fixed investment, which includes spending on housing, plunged by 17.6% in the third quarter, a tumble less than the originally estimated 19.1% plunge. Second-quarter spending fell by 13.3%. The report showed businesses lowered inventories in the third quarter, a drop of $29.1 billion. Originally, Commerce estimated a $38.5 billion decrease. Companies had liquidated stocks by $50.6 billion in the second quarter. The smaller drawdown of goods in the third quarter elevated GDP during that period by 0.89 percentage point. In its original report on third-quarter GDP, Commerce said inventories added 0.56 percentage point to GDP. Real final sales of domestic product, which is GDP less the change in private inventories, declined 1.4%, revised down from an earlier estimated 0.8% decrease. Second-quarter sales rose 4.4%. Federal government spending increased by 13.6%, revised down from an initially estimated 13.8% increase. Second-quarter spending climbed 6.6%. State and local government outlays rose 0.8%.

As for inflation gauges within the report, the government's price index for personal consumption increased 5.2%, below the previously estimated 5.4% increase but above the second quarter's 4.3% increase. The PCE price gauge excluding food and energy climbed 2.6%, below the previously estimated 2.9% increase but higher than the second quarter's 2.2% increase. The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 4.7%, below the previously estimated 4.8% climb but above the second quarter's 4.2% increase.