Weakening GDP Growth Drives Down Bank Profits

Real gross domestic product increased at an annual rate of 1.3 percent during the second quarter of 2012, down sharply from the 1.7 percent growth rate reported one month ago, the ""Bureau of Economic Analysis"":http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm reported. In the first quarter, real GDP, which represents the output of goods and services produced by labor and property located in the U.S., increased 2.0 percent.

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The BEA release also included a revised report on second-quarter corporate profits, showing they were slightly higher than originally reported. However, profits for financial corporations were slightly lower than the previous data. The GDP report fell below the market's expectation, which called for no change of the growth rate and emphasized a moribund economy. The economy had expanded at a 3.0 percent pace in the fourth quarter of 2011.

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The data released thus far for July, August, and early September suggest no significant change for third-quarter 2012 economic activity, though residential fixed investment is likely to show a strong positive contribution.

Personal consumption spending accounted for $35.7 billion, or 85 percent, of the growth in real GDP according to the final estimate, compared with 69 percent in the revised estimate issued one month earlier. Indeed, according to the final estimate, total consumer spending ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô about 70 percent of total GDP ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô was down about $4.4 billion from the earlier report.

Residential fixed investment, at $7.2 billion, was down from the originally reported $7.5 billion and fell from the $16.1 billion spent in the first quarter of the year.

Government spending was reported at $2.48 trillion, unchanged from the earlier report but down $4.3 billion from the first quarter. The drop in government spending subtracted about 0.1 percentage points from the GDP, according to BEA.

Overall, the downward revision to GDP reflected declining revisions to inventories ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô mainly farm inventories - resulting from the summer drought.

In economic measurement terms, these data are ancient economic history, since the third quarter ends Sunday, September 30. The advance third-quarter GDP report will be released on October 26.