WASHINGTON — Pretty much as expected by private economists, preliminary U.S. third-quarter real gross domestic product growth was revised sharply higher to 4.9% from 3.9%, though the economy appears to be slowing sharply in the fourth quarter. The gain marks the best GDP performance since the third quarter of 2003, when it grew 7.5%. Inventories and net exports were revised up, reflecting September’s strong actual data. Exports were up and imports down, a perfect combination for growth, and probably a reflection of a weakening U.S. dollar that will have additional benefits ahead as its lagging effects are felt.Core personal consumption expenditure prices were up 1.8% in the third quarter, an acceleration from the 1.4% growth rate posted in the second. Core PCE prices were up 2.4% in the first quarter, so the current reading is mid-trend. The overall GDP price index was up 0.9% in the third quarter.Most striking in the new data was a $44.8 billion downward revision in second-quarter wages and salaries, which will cut growth ahead because of reduced spending prospects. The change stems from incorporating actual tax data — including bonuses and stock options — into wage tabulations.The Commerce Department also reported that profits from current production fell $19.3 billion, and a breakdown showed that the bulk of the decline stemmed from domestic financial corporations. Profits at nonfinancial firms also fell.Pre-tax profits fell $52 billion after rising $115.7 billion in the second quarter. A special note said that “several large financial corporations announced bad-debt expenses or asset write-offs related to subprime mortgages.” In the national accounts these expenses are treated as capital losses that reduce the value of corporate assets. Thus, the national profits data may differ from corporate accounting, which will show even lower profits. Looking ahead, economic growth appears to be slowing under the weight of declining bank lending, rising energy and food prices, and mortgage market uncertainty that is curtailing corporate spending. Growth prospects for the fourth quarter will depend on how much consumers re-open their wallets during the Christmas shopping season. Given the elongated holiday calendar this year, data on the spending will not be complete until mid-January. — Market News International
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