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Brent Meyer |

Economist

Brent Meyer

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

05.06.08

Economic Trends

Real GDP 2008:Q1 Advance Estimate

Brent Meyer

Real GDP grew at an annualized rate of 0.6 percent in the first quarter of 2008, the same growth rate as last quarter, according to the advance release by the Bureau of Economic Analysis. Over the past four quarters, real GDP has increased 2.5 percent, slightly below its long term (30-year) average of 3.0 percent. Growth in the first quarter was primarily due to increases in exports and private inventories, which were partly offset by a decrease in private investment and an increase in imports (which subtract from real GDP). While headline growth remained at 0.6 percent, growth among the components varied significantly from last quarter.

Real GDP and Components

2008: IQ Advance estimate
Quarterly change
(billions of 2000$)
Annualized percent change, last:
Quarter
Four quarters
Real GDP
17.4
0.6
2.5
Personal consumption
20.0
1.0
1.9
  Durables
-19.4
-6.1
0.4
  Nondurables
-7.9
-1.3
0.4
Services
39.8
3.4
2.8
Business fixed investment
-9.0
-2.5
5.8
  Equipment
-1.9
-0.7
3.3
  Structures
-5.1
-6.2
11.5
Residential investment
-32.1
-26.6
-21.2
Government spending
10.1
2.0
2.9
  National defense
7.5
6.0
5.9
Net exports
7.3
  Exports
19.7
5.5
9.5
  Imports
12.4
2.5
0.7
Change in business inventories
20.1

Source: Bureau of Economic Analysis.

Real personal consumption increased 1.0 percent (annualized rate) in the first quarter, compared to 2.3 percent last quarter. Spending on consumer durables, which posted a small increase in the fourth quarter of 2007, fell 6.1 percent in the first quarter of 2008. Real business fixed investment decreased 2.5 percent during the quarter, actually taking away 0.3 percentage point from real GDP growth, compared to an average contribution of 0.6 percentage point over the last four quarters. Residential investment continued to fall, tumbling 26.6 percent (at an annualized rate) in the first quarter, and is now down 21.2 percent on a year-over-year basis. Inventories added 0.8 percentage point to real GDP growth after taking away 1.5 percentage points last quarter. Exports continued to perform well, rising 5.5 percent in the first quarter, while imports showed a somewhat surprising gain of 2.5 percent, given the backdrop of recent dollar depreciation and weak consumer sentiment.

Over the past few quarters, consumer spending on services has continued to rise slightly, while spending on both durable and nondurable goods has begun to drop off. The four-quarter growth rate in services consumption was 2.8 percent, according to the first-quarter advance estimate, while growth in both durable and nondurable goods consumption fell to 0.4 percent. The decline in the four-quarter growth rate for durable goods was somewhat dramatic, falling from 4.2 percent to 0.4 percent in the first quarter, their lowest growth rate since the fourth quarter of 1991. Looking ahead to the second quarter, the fiscal stimulus rebate checks have already begun to be distributed and that may stave off further deterioration in goods consumption. Estimates of how much of the nearly $120 billion stimulus will be spent by consumers over the next two or three quarters vary dramatically and depend largely on how many people they predict will exhibit income smoothing behavior (and save a large portion of the rebate check).

The Blue Chip consensus economic forecast is predicting that the economy will grow a shade above zero next quarter, snap back in the third quarter, and rise to near-trend growth by the end of 2009.