Revised GDP data: Profit growth remained robust in Q3-2023

Summary

The sequential rate of real GDP growth in Q3-2023, which was originally reported as 4.9%, was revised up to 5.2%. Although growth in real PCE was tamped down a bit, growth in real fixed investment was not as weak as originally reported.

Today's release provided the first look at the income side of the National Income and Product Accounts. In that regard, real gross domestic income rose only 1.5% in the third quarter, marking the fourth consecutive quarter in which growth in real GDI has not kept pace with growth in real GDP. Wages and salaries continue to rise at a strong pace, at least in nominal terms, but elevated inflation is eroding the real value of those wage increases.

Despite weak growth in GDI, corporate profits rebounded in Q3. Pre-tax profits rose by the most in five quarters, leaving the level of profits only a stones-throw away from the recent cycle peak.

Economy-wide profit margins also improved during the quarter amid a sturdy level of end-demand offsetting a still-high cost environment.

Rebounding profits can be supportive of economic growth, but to the extent we see renewed pressure on margins in coming quarters, headcounts and thus broader growth may be at risk of slowing. Recession risks are elevated, but a downturn is far from a certain outcome particularly in an environment of rebounding profits growth.

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