U.S. Economy Slows in Q3 despite Lower Energy Costs

Real GDP rose 2 percent in the third quarter, after rising 3.9 percent in the second quarter, a sharp deceleration that analysts expected despite lower energy costs that have failed to stimulate personal consumption. According to the Bureau of Economic Analysis, the growth in GDP was partly due to a better-than-expected environment for investment, as inventories fell less than feared.

Real GDP rose 2 percent in the third quarter, after rising 3.9 percent in the second quarter, a sharp deceleration that analysts expected despite lower energy costs that have failed to stimulate personal consumption. According to the Bureau of Economic Analysis, the growth in GDP was partly due to a better-than-expected environment for investment, as inventories fell less than feared.

“With the third estimate for the third quarter, the general picture of economic growth remains the same; private inventory investment decreased more than previously estimated,” the BEA said in a statement.

Companies Struggle, Profits Decline

While GDP is growing, companies are losing money at a higher rate, according to the BEA.  Total corporate profits fell -1.7 percent to $33 billion, a sharp reversal from the $70.4 billion increase in corporate profits in the second quarter.  The fall in profits has also impacted tax revenues, with corporate income tax falling $6.9 billion in the third quarter after increasing in the second quarter. However, shareholders still benefit from the economy, with dividends rising $26 billion in the third quarter.

The increase in dividends combined with weakening profits is pressuring American firms, as they struggle to meet shareholder payouts. This is especially true in the energy sector, which has caused dividend cuts or halted dividends entirely in a growing number of firms. Recently, natural gas midstream firm Kinder Morgan cut its dividend by 75 percent, causing the stock price to crash and many retirees dependent on this income to panic.

Other sectors have fared better. Domestic financial corporations saw a $2.5 billion increase in profits, although that was far less than the $34.3 billion profit in the second quarter. At the same time, non-financial corporations saw a decline in profits by $11.1 billion after rising $17 billion in the second quarter. “The third-quarter decrease in profits of non-financial corporations primarily reflected a decrease in manufacturing of durable goods, specifically motor vehicles and machinery; and a decrease in utilities,” said the BEA.

Pricier Homes Nationwide

While companies struggle to make a profit, house flippers find it easier to sell and make capital gains, according to a new study.  The Federal Housing Finance Agency released its House Price Index (HPI) for October 2015, showing a price increase of 6.1 percent on a year-over-year basis. On a 12-month basis, all regions saw price appreciation, with the lowest 2.9 percent increase in New England trailing the highest price gains in the Mountain region, at 8.9 percent.

On a monthly basis, the FHFA HPI saw a 0.5 percent increase, versus 0.4 percent expectations. Housing price gains have decelerated throughout 2014 and 2015 but have remained strong, largely outpacing wage gains as measured by the Bureau of Labor Statistics.