Real GDP unchanged in 2011:Q4, Corporate Profits Advanced
by Asha Bangalore, Northern Trust
Real GDP of the US economy grew 3.0% in the fourth quarter of 2011, unchanged from the prior estimate. However, some components of GDP were modified. Equipment and software spending (+7.5% vs. +4.8%), government outlays (-4.2% vs. -4.4%), and structures (-0.9% vs. -2.6%) show upward revisions, while exports show a downward revision in the final report of fourth quarter GDP.
Corporate profits before tax with inventory valuation and capital consumption adjustments rose 0.9% in the fourth quarter vs. a 1.7% increase in the third quarter. In the fourth quarter, the entire increase in corporate profits was from domestic industries (+3.8%), with profits from operations in the rest of the world posting a decline (-9.2%).
There is a controversy about whether one should use real gross domestic product (GDP) or real gross domestic income (GDI) to evaluate the performance of the U.S. economy. Real GDP is obtained by adding up spending across the economy and real GDI is computed by adding up income earned. Conceptually, GDP and GDI are identical but the source data for each is different and they yield different numbers. As Chart 3 shows, the two measures drift apart sometimes. The GDI measure is gaining attention; Jeremy Nalewaik of the Federal Reserve has pointed out the National Bureau of Economic Research uses monthly indicators, GDI and GDP to determine official dates of business cycle peaks and troughs. Going forward, an average of the two measures may become the preferred measure.
