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By New_Deal_democrat November 24, 2015 10:39 am
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Good news and bad news in revised Q3 GDP

There was good news and bad news in this morning's Q3 GDP revisions.

As you probably have already read, real GDP increased (good news), but that was mainly because of an inventory build (bad news).  

We really want to see inventories being liquidated to accommodate the strong US$.  To the extent that isn't happening, it means more pain in the future.

A second dose of bad news was that corporate profits, a long leading indicator, declined from the Q2 highs:

This is one of the relatively few times that corporate profits moved in the opposite direction of proprietors' income (red), which improved.  Most likely this is due to the greater international exposure of large corporations vs. proprietors.

The downturn in corporate profits joins the failure of interest rates to make new lows for 3 years, as I reported yesterday:

as a yellow flag for the economy particularly beginning in the second half of next year.

A second item of (continued) good news was that real private residential investment, another long leading indicator, remained positive:

Finally, it is thought that Gross Domestic Income (red in the graph below), more accurately forecasts the direction of GDP (blue):

Real GDI also increased, at a higher rate than real GDP.

In summary, revised Q3 GDP provides further confirmation that the economic expansion is getting long in the tooth. But there is no imminent danger of a downturn, especially with housing and cars continuing to trend positive.

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