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Third quarter GDP revised higher to 4%

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The final GDP numbers for the third quarter show the economy grew at a 4% annualize pace, which was just ahead of the 3.1% rate reported a month ago.

A jump in auto sales and an up tick in business investment helped bolster growth in the U.S. economy, with final sales rising 3.5%.

The main sources of the revisions came from higher inventory building, larger investments in homes and more spending by state and local government, compared to the first estimate last month.

While the economy grew at a 4% rate in Q3, corporate profits declined for the third straight quarter, falling 1.8% from Q2, but still up 12.2% when compared to the third quarter of 2001. Profits per unit of output fell, reflecting lower prices received and slightly higher non-labor costs.

Within the numbers, a large part of the growth in Q3 was due to a surge in auto sales, boosted by another round of incentives from the automakers. Consumer spending rose 4.1%, including a 23.1% jump in durable goods purchases.

Auto sales, which represent approximately 4% of final sales, accounted for 42% of growth in the quarter.

Investment accounted for about a fourth of the gain in GDP. Investments in equipment and software rose 6.6%, the second quarter of modest growth after seven disastrous quarters for investment.

Investments in structures, on the other hand, fell by 20.6%, the fourth double-digit drop in a row and the sixth decline in the past seven quarters.

Businesses also rebuilt their inventories, adding $15.5 billion to their stocks. The gain in inventories added about 0.5 percentage points to GDP.

Trade neither added nor subtracted from GDP. Growth in trade slowed sharply in Q3 with exports growing 3.3% after rising 14.3% in the second quarter. Imports grew a modest 2.3% after soaring 22.2% in Q2.

Government spending added about 0.6 percentage points to GDP with federal spending rising 4.3%, the slowest growth in a year. Defense spending jumped 7.1%, also the slowest in a year. Nondefense spending fell 0.7%.

Spending by state and local governments rose 2.4%. State spending should slow as programs are cut to balance budgets.

All totaled, stock futures and the bond markets saw little impact from this morning's economic data and traders currently find S&P futures (sp02z) trading down 3.2 points at 926.50. NASDAQ futures (nd02z) have been in the red all morning and currently tick down 6.5 points at 1,119.50. Dow futures (dj02z) are lower by 22 points at 8,805.

Current futures action points to a lower market open as fair value for the S&P 500 today is $0.12. That price will not change during the session. HL Camp & Company has their computers set for program buying at $1.42 and set for program selling at $-1.92. Fair value for the NASDAQ-100 today is $1.35.

Bonds are finding some meaningful buying with the 10-year December futures (ty02z) 112'315 +0.29% seeing gains, and has the benchmark bond's YIELD ($TNX.X) falling to 4.138%.

This morning's rather "non response" to the GDP data now has traders and investors looking toward this morning's 10:00 AM release of November consumer confidence where economists expect a reading of 83.0, along with October new home sales where economist's have forecasted sales to have slowed to 980K from September's more robust 1.021 million.

Jeff Bailey

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