Highlights
The recovery is not as strong as hoped, based on the latest Commerce Department revision to third quarter GDP. Economic growth was revised downward to an annualized 2.8 percent from the initial estimate of 3.5 percent. The market consensus had expected a 2.8 percent figure for the new estimate. Nonetheless, the third quarter boost is still the first positive number for GDP since a 1.5 percent gain in the second quarter of 2008. The third quarter increase, however, appears to have ended the recession which faded with a 0.7 percent dip in the second quarter.

The downward revisions were broad based, lowering estimates for PCEs, nonresidential structures, residential investment, business inventories, and net exports. Upward revisions were seen in business equipment & software and in government purchases.

But compared to the second quarter, the improvement in real GDP in the third quarter still reflected upturns in personal consumption, exports, and residential fixed investment and a smaller decrease in nonresidential fixed investment and inventory investment. These were partly offset by rise in imports, a downturn in state and local government spending, and a deceleration in federal government spending.


Motor vehicle output added 1.45 percentage points to the latest quarter's growth, compared to the initial estimate of 1.66 percentage points.

Year-on-year, real GDP stood at minus 2.4 percent compared to minus 3.8 percent in the second quarter.

Turning to inflation, the GDPI price index was nudged down to a 0.5 percent annualized pace and compares to the initial estimate of 0.8 percent and the median forecast of 0.8 percent.

Two items stand out in the report. Final sales were revised down to an annualized 1.9 percent from the initial estimate of 2.5 percent. Demand is not as strong as earlier believed. Second, the downward revision to the price index also indicates softness in demand. These two issues could weigh on equities at open and soften Treasury yields. But there is much more economic news ahead today.

While the GDP revision provides interesting numbers to digest ahead of equity markets open, traders will be wary as there are plenty of other indicators that could move markets today-Redbook, S&P Case-Shiller Home Price Index, consumer confidence, FHFA House Price Index, and this afternoon, FOMC minutes. It's way too early to run out and pick up the turkey and cranberry sauce.

Market Consensus Before Announcement
GDP for the third quarter in the advance estimate came in stronger than expected with a 3.5 percent gain, following a 0.7 percent dip in the prior quarter. The third quarter boost was the first positive GDP number since a 1.5 percent increase for the second quarter of 2008. Cash for clunkers did add substantially to third quarter growth as motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change. Inflation is still subdued as the GDP price index edged up 0.8 percent, following no change in the second quarter. Looking ahead, more recent monthly numbers indicate a downward revision to third quarter growth—including negatives from monthly international trade and business inventories.

2009 Release Schedule

Released On: 1/30 2/27 3/26 4/29 5/29 6/25 7/31 8/27 9/30 10/29 11/24 12/22 Released For: Q4:08 Q4:08 Q4:08 Q1:09 Q1:09 Q1:09 Q2:09 Q2:09 Q2:09 Q3:09 Q3:09 Q3:09   A: Advance P: Preliminary F: Final