3Q09 GDP Revised Down, But 4Q Still Looks Strong

This morning’s unexpected downward revision of third quarter GDP to 2.2% from 2.8% was unexpected, but should be made up for by growth around 4.5% in the current quarter.  Looking at this morning’s data, several components were revised between the preliminary and final GDP estimate leading to a decline of -$17.3 billion. The revisions were mostly due to faster inventory liquidation, shrinking net export deficit, marginally lower consumer spending, and less nonresidential fixed investment.  Considering that this data is now three months old, and the outlook for the current quarter remains strong the market reaction from this surprise should be kept at a minimum. But, this data does highlight the fragility of the current economic recovery; lets not forget the preliminary estimate indicated third quarter growth of 3.5%.