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Brent Meyer |

Economist

Brent Meyer

Brent Meyer is a former economist of the Federal Reserve Bank of Cleveland.

11.01.07

Economic Trends

Third-Quarter GDP

Brent Meyer

Real gross domestic product (GDP) increased at a 3.9 percent annualized rate in the third quarter of 2007, following a growth rate of 3.8 percent in the second quarter. Growth in personal consumption expenditures (PCE) accelerated in the third quarter, from 1.4 percent in the second quarter to 3.0 percent in the third. Also contributing to the rise in real GDP was an increase in exports, from 7.5 percent to 16.2 percent, driven by a 23.0 percent spike in goods exports. Imports rose from –2.7 percent to 5.2 percent. Gross private fixed investment was somewhat weaker in the third quarter, rising only 0.8 percent, as residential investment fell 20.1 percent and the growth rate in business fixed investment dropped from 11.0 percent in the second quarter to 7.9 percent in the third. However, investment in equipment and software rose 5.9 percent during the quarter, to its highest growth rate in six quarters. Of course, this information is from the advance report, which is based on incomplete data and, in some cases, trend assumptions, and is subject to further revisions.

Real GDP and Components,Third-Quarter Advance Estimate

Quarterly change(billions of 2000$)
Annualized percent change, last:
Quarter
Four quarters
Real GDP
110.6
3.9
2.6
Personal consumption
61.0
3.0
3.0
  Durables
13.4
4.4
4.7
  Nondurables
16.0
2.7
2.4
Services
32.9
2.9
3.0
Business fixed investment
26.1
7.9
4.8
  Equipment
15.3
5.9
1.4
  Structures
8.9
12.4
12.8
Residential investment
-26.8
-20.1
-16.4
Government spending
18.5
3.7
2.7
  National defense
11.8
9.7
5.6
Net exports
27.7
  Exports
52.7
16.2
9.6
  Imports
25.0
5.2
2.0
Change in business inventories
9.9

 

Personal consumption expenditures contributed 2.1 percentage points to the annualized percent change in real GDP during the third quarter, more than doubling the 1.0 percentage point contribution in the first quarter. Of the 2.1 percentage points contributed by PCE, services added 1.2 percentage points, while durable and nondurable goods contributed 0.4 percentage point and 0.6 percentage point, respectively. Exports, which usually contribute about 1.0 percentage point to GDP growth, added 1.8 points this quarter. Also, net exports added 0.9 percentage point, after a 0.9 percentage point subtraction by imports.

The so-called “housing slump” has continued for quite some time, but the level of residential investment is approaching the roughly $450 billion average seen during the last recession. It stands at $463.9 billion currently. Since its peak in the fourth quarter of 2005, residential investment has lost $143.3 billion. Over that same time period, business fixed investment has gained $132.7 billion.

The near-term consensus growth forecast, as seen by the Blue Chip panel of economists, has GDP dipping down to a growth rate of 1.8 percent, but then rebounding to 2.9 percent by the end of 2008.