Implications: Today's final report for Q3 GDP showed a large unexpected upward revision to real GDP growth, to a 4.1% annual rate in Q3 versus the report last month of 3.6%. This is the fastest pace of growth since Q4 2011. The best part of the report was that both consumer spending and business investment were revised higher while inventories were unrevised, leaving the "mix" of growth slightly better for future quarters. Current forecasts for Q4 GDP growth expect a sharp slowdown, but as these revisions show, the underlying economy is strengthening. Beyond Q4, we expect the economy to pick up to an average growth rate of about 3%. Corporate profits were also revised up slightly for Q3 (up 7.7% annualized from Q2 and up 5.7% from a year ago). Nominal GDP – real GDP growth plus inflation – grew at a 6.2% annual rate in Q3, the highest growth for any quarter since Q1 2006! Nominal GDP is up 3.4% from a year ago and in the past two years, nominal GDP is up at a 4.1% annual rate. All of these nominal GDP growth rates suggest the Federal Reserve's 0% federal funds rate is too low and tapering "should" be proceeding at a faster pace than $10 billion per month. What we have here is a Plow Horse economy that's starting to trot.
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