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John Lindner |

Research Analyst

John Lindner

John Lindner is a former research analyst in the Research Department of the Federal Reserve Bank of Cleveland.

01.06.10

Economic Trends

Real GDP: Third-Quarter 2009 Third Estimate

John Lindner

Third-quarter GDP growth was revised down again in the third estimate. The annualized growth rate has dropped in successive estimates from 3.5 percent to 2.8 percent to 2.2 percent, the latest. This most recent revision was greater than expected (the consensus expectation was for 2.7 percent growth). The four-quarter percent change also fell 0.1 percentage point to −2.6 percent.

The downward revision was largely driven by an additional 1.8 percentage point (pp) decrease in business fixed investment and smaller reductions in personal consumption and private inventories. Other declines occurred in government spending and residential investment. Government spending dropped some of the gain ascribed to it in the second estimate, falling from a 3.1 percent increase to a 2.7 percent increase in the third estimate. Residential investment continued its downward path of revision since the advanced estimate, dropping another 0.6 pp to end at 18.9 percent growth. These losses were offset only by a positive revision to exports, which added 0.8 pp to its annualized growth from last quarter.

Real GDP and Components, 2009:Q3 Third Estimate

Quarterly change,
billions of 2005 $
Annualized percent change, last:
Quarter
Four quarters
Real GDP
71.5
2.2
−2.6
Personal consumption
63.6
2.8
−0.2
  Durables
51.0
20.4
−1.5
  Nondurables
7.6
1.5
−0.9
  Services
11.8
0.8
0.3
Business fixed investment
−19.4
−5.9
−19.6
  Equipment
3.3
1.5
−17.9
  Structures
−19.8
−18.4
−22.9
Residential investment
15.2
18.9
−18.9
Government spending
16.9
2.7
1.9
  National defense
14.1
8.4
5.0
Net exports
−27.0
  Exports
59.3
17.8
−10.7
  Imports
86.4
21.3
−14.0
Private inventories
−139.2

Source: Bureau of Economic Analysis.

Personal consumption remained the largest contributor to the growth in real GDP, adding 2.0 pp (which is smaller than the 2.1 pp of the second estimate). The largest revisions occurred in business fixed investment and the change in inventories, and together these revisions subtracted an additional 0.4 pp from real growth. Business fixed investment accounted for 0.2 pp of the additional subtraction and the change in inventories accounted for the other 0.2 pp. Following both third-quarter revisions, the additional decline in business fixed investment now totals 0.4 pp. The estimate for the change in inventories was unchanged in the second estimate.

The Blue Chip consensus forecast for 2009 real GDP slipped back to −2.5 percent in the December survey, after having climbed 0.1 pp to −2.4 percent in November. Larger-than-expected downward revisions to the third-quarter estimate may put more downward pressure on the consensus forecast for 2009 in the January survey. The consensus estimate for 2010 growth remained steady in December at 2.7 percent, breaking a string of consecutive upward revisions. According to forward-looking forecasts, real GDP growth is first expected to reach its long-run trend again in the fourth quarter of 2010. Looking ahead through the rest of the year, even pessimists are predicting GDP growth of over 1.5 percent for the rest of this year and through 2010.

Third-quarter real growth was largely dependent upon the return of consumer spending. The Cash for Clunkers program added a tremendous lift to the economy, with initial estimates crediting close to 1.5 percentage points of real growth to the program. Consumption of durable goods other than motor vehicles also increased in the third quarter. While the motor vehicles and parts category rose nearly 9.5 percent from the second to the third quarter, recreational goods and vehicles increased over 4 percent, and household durables jumped over 1.5 percent. These improvements were accompanied by a rise in nonrevolving consumer credit, even amidst the massive deleveraging occurring in the economy. In the fourth quarter, personal consumption may be expected to continue on an upward trend, as tax credits may induce more spending on home improvements, and holiday shopping may boost spending on services and nondurables.