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Brent Meyer |

Economist

Brent Meyer

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

12.02.08

Economic Trends

GDP: Third–Quarter Preliminary Estimate

Brent Meyer

Third–quarter real GDP was revised down 0.2 percentage point, to −0.5 percent, according to the preliminary estimate released by the Bureau of Economic Analysis. The downward revision, which was largely anticipated, reflected downward adjustments to personal consumption and exports, which were somewhat offset by an upward adjustment to inventories, and a downward revision to imports (which subtracts from real GDP). Personal consumption was revised down from −3.1 percent (annualized rate) to −3.7 percent—its largest decrease since the second quarter of 1980. Real export growth was adjusted down to 3.4 percent from the 5.9 percent of the advance release. Also, imports are now reported as decreasing at an annualized rate of 3.2 percent, as opposed to −1.9 percent before. Residential investment in the third quarter was revised up from −19.1 percent to −17.6 percent, a slight improvement over its four–quarter growth rate and a somewhat welcome development given the current status of the housing sector.

Real GDP and Components, 2008:Q3 Preliminary Estimate

Quarterly change,
billions of 2000$
Annualized percent change, last:
Quarter
Four quarters
Real GDP
−15.1
−0.5
0.7
Personal consumption
−79.2
−3.7
0.2
  Durables
−49.5
−15.2
−5.7
  Nondurables
−42.9
−6.9
−0.9
Services
0.1
0.0
1.1
Business fixed investment
−5.3
−1.5
1.7
  Equipment
−15.5
−5.6
−2.6
  Structures
5.5
6.6
10.5
Residential investment
−17.5
−17.6
−20.9
Government spending
27.0
5.3
3.0
  National defense
22.4
18.1
7.7
Net exports
29.0
  Exports
13.1
3.4
6.2
  Imports
−15.8
−3.2
−3.4
Private inventories
−29.1

Source: Bureau of Economic Analysis.

According to the preliminary estimate for the third quarter, personal consumption expenditures subtracted 2.7 percentage points from real GDP growth, whereas in the four quarters prior, they had added an average 0.9 percentage point. The real change in private inventories added 0.9 percentage point to growth, up 0.2 percentage point from the advance release. Also, the contribution to growth from exports decreased, but was offset by a gain from imports.

The most recent economic indicators indicate further weakness moving forward. Most notably, durable goods decreased at an annualized rate of 53.3 percent in October, compared to an 8.3 percent decline in the third quarter. Also, retail sales fell 28.6 percent (annualized rate) in October, much further than the 4.8 percent decrease seen in the third quarter. Industrial production increased 16.3 percent (annualized rate) in October, following a 36.8 percent decrease in September. However, much of the headline volatility in this series during September and October was due to “hurricane–related disruptions, which are now estimated to have been larger than previously reported,” according to the Federal Reserve. In fact, “excluding [the effects from the hurricanes], total industrial production is estimated to have fallen around 0.7 percent (nonannualized) in both September and October.”

The forecast from the Blue Chip panel continues to deteriorate. The consensus estimate is now for year–over–year growth of −0.4 percent in 2009, compared to 0.5 percent in the October forecast. Perhaps more indicative of how gloomy the outlook has become is that the Blue Chip optimists (the average of the top–ten forecasts) are now expecting the economy to eke out a growth rate of only 0.3 percent in 2009.