Written by Joseph Plocek

WASHINGTON (MNI) - The Q3:2009 GDP report was revised lower, as expected, and the data add little to the debate about whether the economy's rebound was simply a result of government stimulus or whether there is momentum that can be sustained into the holiday selling season.

Q3 real GDP was revised to +2.8%, a weaker showing from the original estimate of +3.5%. Consumption (now +2.9%) and nonresidential housing spending (now -4.1%) were revised lower, and net exports came in at a deeper deficit than originally assumed. These changes were anticipated because source data differed from assumptions.

This still marks the first GDP advance since Q2:2008 and probably signals end of recession. But decent growth is ancient history as Q4 is unfolding as somewhat weaker. The final tallies for Q4 sales will be delayed until Christmas sales are totaled, so debate about whether the economy is on a sustained up-trend will rage until January.

Growth was bolstered by consumption gaining 2.9% on the back of autos contributing 0.81 point to growth. That was a direct result of the August "Cash for Clunkers" program that subsidized new auto purchases.

In addition, residential investment added 0.45 point to the growth rate, its first add since 2006. This reflected the first-time homebuyer tax credit of up to $8,000 that brought out buyers as home prices fell. The credit has been extended until April 2010 at a lesser maximum of $6,500, so housing should continue to help the economy ahead.

The Commerce Department said the American Recovery and Reinvestment Act of 2009 boosted the economy, but its effects could not be separated by GDP portions. The Act cut taxes, gave grants to state and local governments, and boosted transfer payments. These raised disposable income by about $65 billion in Q3 and $35 billion in Q2.

Prices remained subdued, with the GDP price index printing +0.5%.

Corporate profits were better, with pre-tax profits advancing $156.2 billion as financial firms' profits surged. The report was the first official tally for profits, although individual firms' earnings reports were better.

The data revisions included an $82.2 billion upward revision to Q2 wages and salaries, based on the employment census. This should bolster the economy ahead.

Inventories are key to future growth. Q3 was the first time inventories added to growth in a year. Firms seem determined to keep stocks lean, certainly aided by computerized ordering systems and direct-send mechanisms, and this could delay a traditional robust recovery which often in the past started in the inventory cycle.

GDP Components: Q1 Q2 Q3 orig Q3 rev Real GDP -6.4% -0.7% +3.5% +2.8% Final Sales -4.1% +0.7% +2.5% +1.9% PCE +0.6% -0.9% +3.4% +2.9% Res Fix Invest -38.2% -23.3% +23.4% +19.5% Nonres FixInvest -39.2% -9.6% -2.5% -4.1% Net Exports add 2.64 add 1.65 cut 0.53 cut 0.83 Chg Pvt Invty cut 2.36 cut 1.42 add 0.94 add 0.87

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