The downward GDP ratchet begins

Barbara can have her upbeat housing statistics. The Commerce Department's Bureau of Economic Analysis delivered a downer today, revising its estimate of third-quarter GDP growth from 3.5% to 2.8%. The revision was primarily due, the BEA said, to

an upward revision to imports and downward revisions to personal consumption expenditures and to nonresidential fixed investment that were partly offset by an upward revision to exports.

I posted a couple weeks ago about the prediction of Goldman Sachs economist Jan Hatzius that third-quarter GDP will eventually be revised well downward because small businesses are struggling more than big businesses, and timely data on small business is harder for government statisticians to come by. We haven't even really gotten to those revisions yet, and 3Q GDP is already down to 2.8%. I'd say it's going below 2% before all is said and done.

The main positive news in the GDP report came in the corporate profit numbers, which are always released at the same time as the first revision of GDP. Profits rose at a 10.6% annual pace for the quarter, and are virtually certain to be up for the full year after falling 11.8% in 2008 and 1.4% in 2007. That doesn't sound like much solace, I know, but rising corporate profits are often a precursor to more investment and more economic growth. The only catch: most of the rise was driven by the financial sector. Nonfinancial corporate profits were up just 2% in the quarter, after rising almost 5% in the second quarter.