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Brent Meyer |


Brent Meyer

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


Economic Trends

Real GDP: Fourth-Quarter 2008 Advance Estimate

Brent Meyer

Real GDP decreased at an annualized rate of 3.8 percent in the fourth quarter of 2008. While this marks the statistic’s worst quarterly performance since 1982, it is much less than the −5.5 percent that was expected.

The four-quarter growth rate in real GDP turned negative for the first time since the third quarter of 1991, falling to −0.2 percent. Personal consumption expenditures, which comprise roughly 70 percent of real GDP, decreased 3.5 percent, following a 3.8 percent decline in the previous quarter. The investment picture grew substantially darker, as business fixed investment plummeted 19.1 percent, compared to just a −1.7 percent decline in the previous quarter. Residential investment fell 23.6 percent (−16.1 percent last quarter). Private inventories rose by $6.2 billion (−$29.6 billion last quarter). International trade seemed to fall off the map, with the largest quarterly decreases in exports and imports since 1974 and 1980, respectively. Exports plunged 19.8 percent, while imports fell by 15.7 percent.

Real GDP and Components, 2008:Q4 Advance Estimate

Quarterly change,
billions of 2000$
Annualized percent change, last:
Four quarters
Real GDP
Personal consumption
Business fixed investment
Residential investment
Government spending
  National defense
Net exports
Private inventories

Source: Bureau of Economic Analysis.

Personal consumption subtracted 2.5 percentage points from real GDP growth, all of which came from goods consumption, as services added 0.7 percentage point. This is a slight improvement over the third quarter’s 2.8 percentage point subtraction. Private inventories added 1.3 percentage points to output growth, which far exceeded the average addition to growth of this component (0.2 percentage point) over the past four quarters. While there were wild swings in the contributions of both exports and imports, net exports actually added 0.1 percentage point to growth in the fourth quarter.

The fourth quarter of 2008 saw some of the most dramatic price swings on record for the GDP chain-type price indexes. First, the PCE price index decreased 5.5 percent in the fourth quarter, a record by far (core PCE prices rose 0.6 percent). The next-closest quarterly decrease in the PCE (−3.0 percent) occurred in the first quarter of 1949. Also, the price indexes for imports and exports shattered previous records, falling 36.7 percent and 20.7 percent, respectively. For comparison, the previous record declines were −15.2 percent for imports and −9.6 percent for exports, both happening in the first quarter of 1952.

The latest Blue Chip consensus forecast for real GDP is a −3.3 percent decrease in the first quarter of 2009. However, given the modest upside surprise in the fourth-quarter growth estimate (especially the large run-up in private inventories) and the relatively negative recent forward-looking economic indicators, the first-quarter forecast will likely get revised down. That said, the Blue Chip panelists generally see the recession ending in mid-2009 and growth rebounding to its longer-term trend in 2010.