WASHINGTON — The third quarter real GDP revision was far better than expected, at 0.4-point to 3.9% growth, and sets up for additional growth ahead.
The revision stemmed from higher inventories, consumption (mostly in goods), and nonresidential equipment investment. These, in turn, mostly reflect new September data for inventories as well as financial data for the information industry; they also reflect retail sales revisions and the incorporation of new Energy Department data on motor vehicle fuels.
Import data for equipment and new shipments information resulted in the investment revision. The Commerce Department said all major subcomponents were set higher.
In a surprise, Q2 wages were revised down $50.6 billion, giving less buying power. This did not stop real GDP from surging in Q2 in a response to the severe winter preventing buying, and, in Q3 in a harder to explain result.
For the Q2-Q3 period, real GDP averaged 4.25%, and the Commerce Department said this was the best performance since Q3-Q4 in 2003.
The 2003 period represented a post-recession surge, but the current performance probably reflects instead lower oil prices, surging optimism, and a better mid-cycle jobs market. These factors should continue to support growth ahead, as should growing real final sales that slowed below 3% only during the severe winter.
New information showed corporate profits gained $43.8 billion from current production in Q3 after posting +$164.1 billion in Q2. Nonfinancial domestic profits slowed. Profits after tax were up $48.6 billion.
GDP prices posted a 1.4% gain, a very modest showing. This also reflects falling commodities. Ex food and energy, the price index was up 1.6% in Q3 and 1.7% in Q2, still modest.
Despite the most recent revisions in income, the savings rate has averaged a fairly healthy 5% in the first three periods of 2014.
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