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Brent Meyer |

Economist

Brent Meyer

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

11.03.08

Economic Trends

GDP: Third-Quarter Advance Estimate

Brent Meyer

Real GDP decreased at an annualized rate of 0.3 percent in the third quarter, slightly above expectations. Much of the decrease was due to a dramatic drop in consumption and a decrease in investments. Personal consumption expenditures decreased 3.1 percent in the third quarter, their largest decrease since the second quarter of 1980. Even worse, spending on nondurable goods fell 6.5 percent during the quarter, its largest decrease since the fourth quarter of 1950.

Nonresidential fixed investment fell 1.0 percent, while residential investment—resuming a more negative path after easing down to only 13.3 percent last quarter—decreased 19.1 percent in the third quarter. Over the past year, residential investment has fallen 21.3 percent. Some components countered the decline in growth: Real exports increased 5.9 percent in the third quarter, and real imports (which are subtracted from GDP) decreased 1.9 percent. Government consumption expenditures and gross investment rose 5.8 percent during the quarter, as national defense spending jumped up 18.2 percent. Also, the sell-off in real private inventories slowed (contributing to real GDP growth), shedding $38.5 billion in the third quarter, compared to a decrease of $50.6 billion in the second quarter. That said, counting on government spending, inventories, and net exports to bolster GDP growth is not exactly an encouraging sign.

Real GDP and Components, 2008:Q3 Advance Estimate

Quarterly change,
billions of 2000$
Annualized percent change, last:
Quarter
Four quarters
Real GDP
−7.4
−0.3
0.8
Personal consumption
−66.1
−3.1
0.0
  Durables
−45.8
−14.1
−5.4
  Nondurables
−40.0
−6.4
−0.7
Services
7.1
0.6
1.3
Business fixed investment
−3.5
−1.0
1.8
  Equipment
−15.1
−5.5
−2.6
  Structures
6.5
7.9
10.8
Residential investment
−19.1
−19.1
−21.3
Government spending
29.4
5.8
3.1
  National defense
22.5
18.2
7.7
Net exports
31.3
  Exports
22.3
5.9
6.9
  Imports
−9.1
−1.9
−3.1
Private inventories
−38.5

Source: Bureau of Economic Analysis.

Real personal consumption subtracted 2.3 percentage points from real GDP growth in the third quarter, the most it has taken away from GDP growth since the 1980 recession. Both residential and business investment subtracted from growth during the quarter, deducting 0.7 percentage point and 0.1 percentage point, respectively. Government consumption expenditures and gross investment added 1.2 percentage points, with the majority of that coming from national defense—which added 0.9 percentage point. Also, net exports added 1.1 percentage points to real GDP growth in the third quarter, while the real change in private inventories added 0.6 percentage point.

An alternative barometer of our national performance—real gross domestic purchases (purchases by U.S. residents wherever produced)—fell 1.3 percent in the third quarter, compared to a decrease of 0.1 percent last quarter, pushing the year–over–year growth rate to −0.6 percent. The growth rate in this series did not turn negative during the 2001 recession, but did fall to −1.8 percent during the 1990–91 recession.

The consensus forecast from the Blue Chip Panel of forecasters is now for three consecutive quarters of negative growth, punctuated by a slow rebound toward trend growth. The consensus estimate for 2009 year–over–year growth fell to 0.5 percent, a full percentage point below the previous forecast, with nearly all forecasters marking down their outlook. Perhaps more indicative of how gloomy the outlook has become is that the Blue Chip optimists (the average of the top to 0.5 percent top–10 forecasts) are now expecting the economy to eke out a growth rate of only 1.3 percent in 2009.