Q3 GDP Thoughts

From BEA's Q3 GDP release (emphasis mine):

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.5 percent in the third quarter of 2010, (that is, from the second quarter to the third quarter), according to the "second" estimate released by the Bureau of Economic Analysis.  In the second quarter, real GDP increased 1.7 percent.

Real personal consumption expenditures increased 2.8 percent in the third quarter, compared with an increase of 2.2 percent in the second.  Real nonresidential fixed investment increased 10.3 percent, compared with an increase of 17.2 percent.  Nonresidential structures decreased 5.7 percent, compared with a decrease of 0.5 percent.  Equipment and software increased 16.8 percent, compared with an increase of 24.8 percent.  Real residential fixed investment decreased 27.5 percent, in contrast to an increase of 25.7 percent.

***The growth rate is obviously slowing from the high RPM levels seen in Q2, but admittedly still growing at a decent clip.

Corporate Profits

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $44.4 billion in the third quarter, compared with an increase of $47.5 billion in the second quarter.  Current-production cash flow (net cash flow with inventory valuation adjustment) -- the internal funds available to corporations for investment -- decreased $57.8 billion in the third quarter, in contrast to an increase of $61.1 billion in the second.

***Not the trend we like to see in any market.

Taxes on corporate income increased $31.8 billion in the third quarter, compared with an increase of $2.4 billion in the second.  Profits after tax with inventory valuation and capital consumption adjustments increased $12.6 billion in the third quarter, compared with an increase of $45.2 billion in the second.  Dividends increased $8.2 billion compared with an increase of $8.1 billion; current-production undistributed profits increased $4.4 billion, compared with an increase of $37.1 billion.

Domestic profits of financial corporations increased $33.3 billion in the third quarter, in contrast to a decrease of $3.4 billion in the second.  Domestic profits of nonfinancial corporations increased $18.6 billion in the third quarter, compared with an increase of $48.2 billion in the second.

Overall, the numbers continue to be strong, but the deceleration in the pace of growth is becoming clearly obvious.  Of concern is the slowdown in profits of domestic nonfinancial corporations (feedstock price increases and waning productivity gains)and the current production cash flow numbers falling nearly $58B during the quarter.