GDP and the economy: third estimates for the third quarter of 2012.

Smith, Shelly

REAL GROSS domestic product (GDP) increased at an annual rate of 3.1 percent in the third quarter of 2012, according to the third estimates of the national income and product accounts (NIPAs) (chart 1 and table 1). (1) In the second quarter, real GDP increased 1.3 percent.

The third estimate of real GDP growth was revised up 0.4 percentage point from the second estimate, but the general picture of the economy for the third quarter did not change significantly. However, consumer spending now shows a modest pickup, and imports now shows a downturn (see page 3). (2)

* Prices of goods and services purchased by U.S. residents increased 1.4 percent in the third quarter, the same increase as the second estimate; in the second quarter, prices increased 0.7 percent. Energy prices turned up in the third quarter, and food prices turned down. Excluding food and energy, prices increased 1.2 percent after increasing 1.4 percent in the second quarter.

* Real disposable personal income (DPI) increased 0.5 percent in the third quarter, the same increase as the second estimate; in the second quarter, real DPI increased 2.2 percent. Current-dollar DPI increased 2.1 percent in the third quarter; in the second quarter, current-dollar DPI increased 2.9 percent.

* The personal saving rate, personal saving as a percentage of current-dollar DPI, was 3.6 percent in the third quarter; in the second quarter, the rate was 3.8 percent.

* Real gross domestic income rose 1.4 percent in the third quarter after falling 0.7 percent in the second quarter.

* Profits from current production increased $45.7 billion in the third quarter after increasing $21.8 billion in the second quarter (see page 4).

[GRAPHIC 1 OMITTED]

Real GDP Overview

Consumer spending accelerated slightly in the third quarter, adding 1.12 percentage points to real GDP growth after adding 1.06 percentage points.

Nonresidential fixed investment turned down, subtracting 0.19 percentage point from real GDP growth after adding 0.36 percentage point. The downturn primarily reflected a downturn in equipment and software.

Inventory investment turned up, adding 0.73 percentage point to real GDP growth after subtracting 0.46 percentage point. An upturn in nonfarm inventory investment was partly offset by a larger decrease in farm inventory investment that reflected the continuing effects of this summer's drought.

Exports slowed, adding 0.27 percentage point to real GDP growth after adding 0.72 percentage point. A slowdown in goods exports was partly offset by a pickup in services exports.

Imports turned down, adding 0.11 percentage point to real GDP growth after subtracting 0.49 percentage point. The downturn was accounted for by goods imports. Services imports increased at about the same rate as in the second quarter.

Government spending turned up, reflecting upturns in both federal government spending and in state and local government spending. The upturn in federal spending primarily reflected an upturn in defense spending, but nondefense spending also turned up. The upturn in state and local spending primarily reflected an upturn in consumption expenditures (specifically, compensation of employees).

Real final sales of domestic product, GDP less inventory investment, accelerated, increasing 2.4 percent in the third quarter after increasing 1.7 percent.

Motor vehicle output turned down, subtracting 0.25 percentage point from real GDP growth after adding 0.20 percentage point.

Final sales of computers turned up, adding 0.11 percentage point to real GDP growth after subtracting 0.10 percentage point.

Real gross domestic income, which measures the output of the economy as the incomes earned and costs incurred from production, increased 1.4 percent after decreasing 0.7 percent.

Revision to GDP

The third estimate of the percent change in real GDP was 0.4 percentage point higher than the second estimate. The average revision (without regard to sign) from the second estimate to the third estimate is 0.3 percentage point. The upward revision to the percent change in real GDP primarily reflected an upward revision to consumer spending, a downward revision to imports, and upward revisions to exports and to state and local government spending.

The revision to consumer spending primarily reflected an upward revision to health care services that was partly offset by a downward revision to recreation services.

The revision to exports reflected upward revisions to both goods and services exports. The largest contributors to the upward revision to goods exports were industrial supplies and materials and "other" goods. The largest contributor to the upward revision to services exports was transfers under U.S. military agency sales contracts.

The revision to imports reflected downward revisions to both services and goods imports. The largest contributors to the downward revision to services imports were travel and royalties and license fees. The largest contributor to the downward revision to goods imports was nonpetroleum industrial supplies and materials.

The revision to state and local government spending primarily reflected an upward revision to investment in structures.

Source Data and Methodologies

For the details about the source data and the methodologies that are used for the estimates, see Concepts and Methods of the U.S. National Income and Product Accounts at www.bea.gov/methodologies/index.htm.

Source data for the third estimate. The third estimate of GDP for the third quarter of 2012 incorporated the following source data.

Consumer spending: Census Bureau retail sales for September (revised) and quarterly services survey data for the third quarter (new) and Energy Information Administration electricity and natural gas usage and unit value data for August (revised) and September (new).

Nonresidential fixed investment: Census Bureau construction spending data for August and September (revised) and quarterly services survey data for the third quarter (new).

Residential fixed investment: Census Bureau construction spending data for August and September (revised).

Inventory investment: Census Bureau manufacturers' and trade inventories for September (revised) and Quarterly Financial Report data for the third quarter (revised) and U.S. Department of Agriculture farm income statistics for 2012 (revised).

Exports and imports: Bureau of Economic Analysis international transactions accounts data for July-September (revised) and Bureau of Labor Statistics (BLS) exports and import prices for July-September (revised).

Government spending: Census Bureau construction spending data for August and September (revised).

Prices: BLS export and import prices for July-September (revised) and producer price indexes for July (revised).

Corporate Profits

Profits from current production increased $45.7 billion, or 2.4 percent at a quarterly rate, in the third quarter after increasing $21.8 billion, or 1.1 percent, in the second quarter.

Domestic profits of financial corporations increased $68.1 billion, or 17.5 percent, after decreasing $39.7 billion, or 9.3 percent.

Domestic profits of nonfinancial corporations decreased $14.1 billion, or 1.3 percent, after increasing $27.8 billion, or 2.6 percent.

Profits from the rest of the world decreased $8.2 billion, or 1.9 percent, in the third quarter after increasing $33.6 billion, or 8.4 percent, in the second quarter. In the third quarter, receipts increased $4.2 billion, and payments increased $12.4 billion.

Taxes on corporate income increased $9.1 billion, or 2.0 percent, after decreasing $10.3 billion, or 2.3 percent.

Net dividends increased $12.8 billion, or 1.7 percent, after increasing $20.4 billion, or 2.8 percent.

Measuring Corporate Profits

Corporate profits is a widely followed economic indicator used to gauge corporate health, assess investment conditions, and analyze the effect on corporations of economic policies and conditions. In addition, corporate profits is an important component in key measures of income.

BEA's measure of corporate profits aims to capture the income earned by corporations from current production in a manner that is fully consistent with the national income and product accounts (NIPAs). The measure is defined as receipts arising from current production less associated expenses. Receipts exclude income in the form of dividends and capital gains, and expenses exclude bad debts, natural resource depletion, and capital losses.

Because direct estimates of NIPA-consistent corporate profits are unavailable, BEA derives these estimates in three steps.

First, BEA measures profits before taxes to reflect corporate income regardless of any redistributions of income through taxes. Estimates for the current quarter are based on corporate earnings reports from sources including the Census Bureau Quarterly Financial Report, Federal Deposit Insurance Corporation Call Reports, other regulatory reports, and tabulations from corporate financial reports. The estimates are benchmarked to Internal Revenue Service (IRS) data when these data are available for two reasons: the IRS data are based on well-specified accounting definitions, and they are comprehensive, covering all incorporated businesses--publicly traded and privately held--in all industries.

Second, to remove the effects of price changes on inventories valued at historical cost and of tax accounting for inventory withdrawals, BEA adds an inventory valuation adjustment that values inventories at current cost.

Third, to remove the effects of tax accounting on depreciation, BEA adds a capital consumption adjustment (CCAdj). CCAdj is defined as the difference between capital consumption allowances (tax return depreciation) and consumption of fixed capital (the decline in the value of the stock of assets due to wear and tear, obsolescence, accidental damage, and aging).

Corporate Profits by Industry

Profits with inventory valuation adjustment (IVA) increased $43.2 billion, or 2.0 percent at a quarterly rate, in the third quarter after increasing $23.5 billion, or 1.1 percent, in the second quarter.

Profits of domestic industries increased $51.5 billion, or 3.1 percent, after decreasing $10.2 billion, or 0.6 percent.

Profits of domestic financial industries increased $67.7 billion, or 15.3 percent, after decreasing $39.3 billion, or 8.2 percent.

Profits of domestic nonfinancial industries decreased $16.2 billion, or 1.3 percent, after increasing $29.0 billion, or 2.4 percent. The decrease primarily reflected decreases in wholesale trade industries and in manufacturing industries that were partly offset by an increase in "other" nonfinancial industries. In manufacturing industries, most of the decrease was accounted for by durable-goods industries. In nondurable-goods industries, a notable decrease in chemical products was largely offset by increases in "other" nondurable goods and in petroleum and coal products.

[GRAPHIC 2 OMITTED]

Corporate Profits by Industry

Industry profits are corporate profits by industry with inventory valuation adjustment (IVA). The IVA removes the effect of price changes on inventories. The IVA is the difference between the cost of inventory withdrawals at acquisition cost and replacement cost. Ideally, BEA would also add the capital consumption adjustment (CCAdj) for each industry. However, estimates of the CCAdj are only available for two broad categories: total financial industries and total non financial industries. For more information about BENs methodology, see "Corporate Profits" in Concepts and Methods of the U.S. National Income and Product Accounts at www.bea.gov/methodologies/index.htm.

(1.) "Real" estimates are in chained (2005) dollars, and price indexes are chain-type measures. Each GDP estimate for a quarter (advance, second, and third) incorporates increasingly comprehensive and improved source data; for more information, see "Revisions to GDP, GDI, and Their Major Components" in the July 2011 SURVEY OF CUP, RENT BUSINESS. Quarterly estimates are expressed at seasonally adjusted annual rates, which assumes that a rate of activity for a quarter is maintained for a year.

(2.) In this article, "consumer spending" refers to "personal consumption expenditures (PCE)" "government spending" refers to "government consumption expenditures and gross investment" and "inventory investment" refers to "change in private inventories."

Table 1. Real Gross Domestic Product and Components
[Seasonally adjusted at annual rates]

 Share of
 current-
 dollar
 GDP
 (percent)

 2012

 III

 Gross domestic product (1) 100.0
Personal consumption
 expenditures 70.5
 Goods 24.0
 Durable goods 7.7
 Nondurable goods 16.3
 Services 46.6
Gross private domestic
 investment 13.2
 Fixed investment 12.6
 Nonresidential 10.2
 Structures 2.9
 Equipment and software 7.3
 Residential 2.5
 Change in private inventories 0.5
Net exports of goods and
 services -3.3
 Exports 13.9
 Goods 9.8
 Services 4.1
 Imports 17.2
 Goods 14.3
 Services 2.9
Government consumption
 expenditures and gross
 investment 19.6
 Federal 7.9
 National defense 5.3
 Nondefense 2.6
 State and local 11.7

 Change from
 preceding period
 (percent)

 2011 2012

 IV I II III

 Gross domestic product (1) 4.1 2.0 1.3 3.1
Personal consumption
 expenditures 2.0 2.4 1.5 1.6
 Goods 5.4 4.7 0.3 3.6
 Durable goods 13.9 11.5 -0.2 8.9
 Nondurable goods 1.8 1.6 0.6 1.2
 Services 0.3 1.3 2.1 0.6
Gross private domestic
 investment 33.9 6.1 0.7 6.6
 Fixed investment 10.0 9.8 4.5 0.9
 Nonresidential 9.5 7.5 3.6 -1.8
 Structures 11.5 12.9 0.6 0.0
 Equipment and software 8.8 5.4 4.8 -2.6
 Residential 12.1 20.5 8.5 13.5
 Change in private inventories
Net exports of goods and
 services
 Exports 1.4 4.4 5.3 1.9
 Goods 6.0 4.0 7.0 1.1
 Services -8.8 5.2 1.1 4.0
 Imports 4.9 3.1 2.8 -0.6
 Goods 6.3 2.0 2.9 -1.2
 Services -1.7 9.0 2.3 2.6
Government consumption
 expenditures and gross
 investment -2.2 -3.0 -0.7 3.9
 Federal -4.4 -4.2 -0.2 9.5
 National defense -10.6 -7.1 -0.2 12.9
 Nondefense 10.2 1.8 -0.4 3.0
 State and local -0.7 -2.2 -1.0 0.3

 Contribution to percent
 change in real GDP
 (percentage points)

 2011 2012

 IV I II III

 Gross domestic product (1) 4.1 2.0 1.3 3.1
Personal consumption
 expenditures 1.45 1.72 1.06 1.12
 Goods 1.29 1.11 0.08 0.85
 Durable goods 0.85 -0.02 0.66
 Nondurable goods 0.29 0.26 0.10 0.19
 Services 0.16 0.61 0.99 0.26
Gross private domestic
 investment 3.72 0.78 0.09 0.85
 Fixed investment 1.19 1.18 0.56 0.12
 Nonresidential 0.93 0.74 0.36 -0.19
 Structures 0.31 0.35 0.02 0.00
 Equipment and software 0.62 0.39 0.35 -0.19
 Residential 0.26 0.43 0.19 0.31
 Change in private inventories 2.53 -0.39 -0.46 0.73
Net exports of goods and
 services -0.64 0.06 0.23 0.38
 Exports 0.21 0.60 0.72 0.27
 Goods 0.58 0.39 0.67 0.11
 Services -0.38 0.21 0.05 0.16
 Imports -0.85 -0.54 -0.49 0.11
 Goods -0.90 -0.29 -0.42 0.18
 Services 0.05 -0.25 -0.07 -0.07
Government consumption
 expenditures and gross
 investment -0.43 -4.60 -0.14 0.75
 Federal -0.35 -0,34 -0.02 0.71
 National defense -0.60 -0.39 -0.01 0.64
 Nondefense 0.25 0.05 -0.01 0.08
 State and local -0 08 -0.26 -0.12 0.04

(1.) The estimates of GDP under the contribution columns are also
percent changes.

NOTE. Percent changes are from NIPA table 1.1.1, contributions are
from NIPA table 1.1.2, and shares are from NIPA table 1.1.10.

Table 2. Real Gross Domestic Product (GDP) and Related Measures
[Seasonally adjusted at annual rates]

 Share of
 current-
 dollar
 GDP
 (percent)

 2012

 III

Gross domestic product (1) 100.0
 Final sales of domestic product 99.5
 Change in private inventories 0.5
 Goods 28.7
 Services 64.3
 Structures 7.0

Addenda:

Motor vehicle output 2.7
GDP excluding motor vehicle output 97.3
Final sales of computers 0.4
GDP excluding final sales of
 computers 99.6
Gross domestic income (GDI) (2)

 Change from
 preceding period
 (percent)

 2011 2012

 IV I II III

Gross domestic product (1) 4.1 2.0 1.3 3.1
 Final sales of domestic product 1.5 2.4 1.7 2.4
 Change in private inventories ... ... ... ...
 Goods 16.1 3.9 1.3 6.1
 Services -1.0 0.6 1.2 1.7
 Structures 7.2 7.4 1.7 3.9

Addenda:

Motor vehicle output 24.0 30.9 7.3 -8.6
GDP excluding motor vehicle output 3.6 1.3 1.1 3.5
Final sales of computers 31.1 4.5 -19.9 29.5
GDP excluding final sales of
 computers 4.0 1.9 1.4 3.0
Gross domestic income (GDI) (2) 4.5 3.8 -0.7 1.4

 Contribution to percent
 change in real GDP
 (percentage points)

 2011 2012

 IV I II III

Gross domestic product (1) 4.1 2.0 1.3 3.1
 Final sales of domestic product 1.56 2.35 1.71 2.37
 Change in private inventories 2.53 -0.39 -0.46 0.73
 Goods 4.23 1.09 0.38 1.73
 Services -0.62 0.38 0.76 1.11
 Structures 0.49 0.50 0.12 0.27

Addenda:

Motor vehicle output 0.55 0.72 0.20 -0.25
GDP excluding motor vehicle output 3.54 1.23 1.06 3.36
Final sales of computers 0.12 0.02 -0.10 0.11
GDP excluding final sales of
 computers 3.97 1.94 1.35 2.99
Gross domestic income (GDI) (2) ... ... ... ...

(1.) The estimates under the contribution columns are also percent
changes.

(2.) GDI is deflated by the implicit price deflator for GDP

NOTE. For GDP and its components, percent changes are from NIPA table
1.2.1, contributions are from NIPA table 1.2.2, and shares are
calculated from NIPA table 1.2.5. For GDI, percent changes are from
NIPA table 1.7,1.

Table 3. Second and Third Estimates for the Third Quarter of 2012
[Seasonally adjusted at annual rates]

 Change from
 preceding quarter
 (percent)

 Third
 minus
 Second Third second

 Gross domestic product (GDP) (1) 2.7 3.1 0.4
Personal consumption expenditures 1.4 1.6 0.2
 Goods 3.5 3.6 0.1
 Durable goods 8.7 8.9 0.2
 Nondurable goods 1.1 1.2 0.1
 Services 0.3 0.6 0.3
Gross private domestic investment 6.7 6.6 -0.1
 Fixed investment 0.7 0.9 0.2
 Nonresidential -2.2 -1.8 0.4
 Structures -1.1 0.0 1.1
 Equipment and software -2.7 -2.6 0.1
 Residential 14.2 13.5 -0.7
 Change in private inventories ... ... ...
Net exports of goods and services ... ... ...
 Exports 1.1 1.9 0.8
 Goods 0.2 1.1 0.9
 Services 3.2 4.0 0.8
 Imports 0.1 -0.6 -0.7
 Goods -1.0 -1.2 -0.2
 Services 5.9 2.6 -3.3
Government consumption expenditures and
 gross investment 3.5 3.9 0.4
 Federal 9.5 9.5 0.0
 National defense 12.9 12.9 0.0
 Nondefense 3.0 3.0 0.0
 State and local -0.4 0.3 0.7
Addenda:
 Final sales of domestic product 1.9 2.4 0.5
 Gross domestic purchases price index 1.4 1.4 0.0
 GDP price index 2.7 2.7 0.0

 Contribution to percent
 change in real GDP
 (percentage points)

 Third
 minus
 Second Third second

 Gross domestic product (GDP) (1) 2.7 3.1 0.4
Personal consumption expenditures 0.99 1.12 0.13
 Goods 0.83 0.85 0.02
 Durable goods 0.64 0.66 0.02
 Nondurable goods 0.18 0.19 0.01
 Services 0.16 0.26 0.10
Gross private domestic investment 0.86 0.65 -0.01
 Fixed investment 0.10 0.12 0.02
 Nonresidential -0.23 -0.19 0.04
 Structures -0.03 0.00 0.03
 Equipment and software -0.20 -0.19 0.01
 Residential 0.32 0.31 -0.01
 Change in private inventories 0.77 0.73 -0.04
Net exports of goods and services 0.14 0.38 0.24
 Exports 0.16 0.27 0.11
 Goods 0.03 0.11 0.08
 Services 0.13 0.16 0.03
 Imports -0.02 0.11 0.13
 Goods 0.15 0.18 0.03
 Services -0.17 -0.07 0.10
Government consumption expenditures and
 gross investment 0.67 0.75 0.08
 Federal 0.71 0.71 0.00
 National defense 0.64 0.64 0.00
 Nondefense 0.08 0.08 0.00
 State and local -0.04 0.04 0.08
Addenda:
 Final sales of domestic product 1.90 2.37 0.47
 Gross domestic purchases price index ... ... ...
 GDP price index ... ... ...

(1.) The estimates for GDP under the contribution columns are also
percent changes.

Table 4. Corporate Profits
[Seasonally adjusted]

 Billions of dollars (annual rate)

 Level Change from preceding
 quarter

 2012 2011 2012

 III IV I II III

Current production measures:
Corporate profits 1,967.6 122.6 -53.0 21.8 45.7
 Domestic industries 1,539.3 119.5 -5.0 -11.9 54.0
 Financial 457.3 88.0 -12.3 -39.7 68.1
 Nonfinancial 1,082.0 31.4 7.3 27.8 -14.1
 Rest of the world 428.3 3.1 -48.0 33.6 -8.2
 Receipts from the rest
 of the world 645.7 -5.0 -13.7 10.0 4.2
 Less: Payments to the
 rest of the world 217.4 -8.2 34.4 -23.6 12.4
Less: Taxes on corporate
 income 452.4 8.4 83.2 -10.3 9.1
Equals: Profits after tax 1,515.2 114.3 -136.2 31.9 36.7
 Net dividends 760.3 12.0 9.2 20.4 12.8
 Undistributed profits from
 current production 754.8 102.3 -145.5 11.6 23.8
Net cash flow 1,874.3 139.4 -169.8 6.0 32.5

 Percent change from
 preceding quarter
 (quarterly rate)

 2011 2012

 IV I II III

Current production measures:
Corporate profits 6.7 -2.7 1.1 2.4
 Domestic industries 8.6 -0.3 -0.8 3.6
 Financial 24.9 -2.8 -9.3 17.5
 Nonfinancial 3.1 0.7 2.6 -1.3
 Rest of the world 0.7 -10.7 8.4 -1.9
 Receipts from the rest
 of the world -0.8 -2.1 1.6 0.6
 Less: Payments to the
 rest of the world -4.0 17.7 -10.3 6.0
Less: Taxes on corporate
 income 2.3 22.5 -2.3 2.0
Equals: Profits after tax 7.8 -8.6 2.2 2.5
 Net dividends 1.7 1.3 2.8 1.7
 Undistributed profits from
 current production 13.4 -16.8 1.6 3.3
Net cash flow 7.5 -8.5 0.3 1.8

NOTE. Levels of these and other profits series are shown in NIPA
tables 1.12,1.14,1.15, and 6.16D.

Table 5. Corporate Profits by Industry

[Seasonally adjusted]

 Billions of dollars (annual rate)

 Level Change from
 preceding quarter

 2012 2011 2012

 III IV I II III

Industry profits:

Profits with IVA 2,167.5 124.7 177.3 23.5 43.2

 Domestic industries 1,739.2 121.5 225.4 -10.2 51.5

 Financial 509.6 88.3 12.1 -39.3 67.7

 Nonfinancial 1,229.6 33.2 213.4 29.0 -16.2

 Utilities 42.0 4.9 23.2 3.0 0.7
 Manufacturing 367.6 37.0 77.6 9.3 -5.2
 Wholesale trade 130.2 0.7 28.6 15.0 -19.4
 Retail trade 138.3 17.1 17.7 -2.2 1.9
 Transportation
 and warehousing 54.6 3.9 7.2 -1.7 -0.4
 Information 118.1 -2.1 24.4 8.8 -0.5
 Other
 nonfinancial 378.7 -28.3 34.7 -3.1 6.5
 Rest of the world 428.3 3.1 -48.0 33.6 -8.2

Addenda:
Profits before tax
 (without
 IVA and CCAdj) 2,194.4 97.1 188.1 -16.3 86.2
Profits after tax
 (without
 IVA and CCAdj) 1,742.0 88.8 104.8 -6.0 77.1
IVA -26.8 27.7 -10.8 39.7 -42.8
CCAdj -200.0 -2.1 -230.3 -1.7 2.4

 Percent change from
 preceding quarter
 (quarterly rate)

 2011 2012

 IV 1 II III

Industry profits:

Profits with IVA 6.9 9.2 1.1 2.0

 Domestic industries 9.0 15.3 -0.6 3.1

 Financial 23.2 2.6 -8.2 15.3

 Nonfinancial 3.4 21.3 2.4 -1.3

 Utilities 47.2 154.4 7.7 1.9
 Manufacturing 14.9 27.2 2.5 -1.4
 Wholesale trade 0.6 27.0 11.2 -12.9
 Retail trade 16.5 14.7 -1.6 1.4
 Transportation
 and warehousing 8.6 14.4 -3.0 -0.7
 Information -2.4 28.5 8.0 -0.4
 Other
 nonfinancial -7.7 10.2 -0.8 1.8
 Rest of the world 0.7 -10.7 8.4 -1.9

Addenda:
Profits before tax
 (without
 IVA and CCAdj) 5.3 9.7 -0.8 4.1
Profits after tax
 (without
 IVA and CCAdj) 6.0 6.7 -0.4 4.6
IVA
CCAdj ... ... ... ...

Note. Levels of these and other profits series are shown in NIPA
tables 1.12,1.14,1.15, and 6.16D.

IVA Inventory valuation adjustment

CCAdj Capital consumption adjustment