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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 Preliminary Estimate

Brent Meyer

Real GDP was revised down by 2.5 percentage points to −6.2 percent (annualized rate) in the fourth quarter of 2008, according to the preliminary release by the Bureau of Economic Analysis. For context, the average revision without regard to sign from the advance to preliminary estimate is 0.5 percentage point. If the current estimate holds, it will be the sharpest quarterly decrease between the two releases since the first quarter of 1982.

On a year-over-year basis, real GDP slipped into the red for the first time since the 1990 recession, falling to −0.8 percent. The only major component that contributed to real GDP growth was government spending, which increased only 1.6 percent. (Other major components are consumption, gross investment, and exports net of imports).

Real GDP and Components, 2008:Q4 Preliminary 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.

The preliminary release contained fairly widespread downward revisions, though the largest adjustments came from private inventories and exports. The change in private inventories was revised down from an addition of $6.2 billion to a subtraction of $19.9 billion, accounting for 1.2 percentage points in the downward adjustment to real GDP growth.

Exports were revised down to −23.6 percent from −19.8 percent in the advance estimate, pulling down growth by an additional 0.6 percentage point—the deepest contraction in exports since the fourth quarter of 1971.

The growth rate in personal consumption fell to −4.3 percent from the advance release's −3.5 percent, subtracting an additional 0.5 percentage point from real GDP growth (−3.0 percentage point in total). On a year-over-year basis, consumption is down 1.5 percent, its slowest growth rate since the third quarter of 1951.

Real residential investment was revised up from −23.6 percent in the advance release to −22.2 percent (adding 0.1 percentage point to growth), though business fixed investment was revised down slightly, subtracting an additional 0.2 percentage point from total output.

The majority of economists on the Blue Chip panel again revised down their annual estimates for real GDP in 2009 and 2010, and, as of the first week of February, expect a first-quarter decrease of 4.9 percent. Next month will likely be no different, given the relatively large downward revision to output. That said, the consensus viewpoint is for the recession to end by midyear (even the average of the 10 most pessimistic respondents is for positive GDP growth by the fourth quarter of 2009).

One of the adverse outcomes of the financial crisis has been a lack of credit, which has depressed consumer spending. Some analysts have suggested the situation might spark a reversal in the trend toward increasing consumption and the return of higher savings rates.

Personal consumption expenditures as a share of GDP rose from an average of roughly 63 percent during the 1970s and 1980s to a peak of 70.9 percent in the second quarter of 2008. During the second half of 2008, consumption’s share of GDP fell 1.0 percentage point from the peak.

The personal savings rate, which had been hovering near 10 percent during the 1970s and 1980s, actually fell negative during the height of the recent housing price “bubble.” In the fourth quarter of 2008, savings increased to 3.2 percent and, in the most recent monthly reading, jumped to 5.0 percent in January.

Obviously, no one knows whether this trend will continue and whether the savings rate will increase to levels seen during the latter half of the twentieth century. However, if the decrease in the savings rate was a rational response to perceived wealth increases tied to house-price appreciation, then it stands to reason that as long as house prices continue to fall, the savings rate should increase.