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Brent Meyer |

Economist

Brent Meyer

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

03.07.07

Economic Trends

Real GDP 2007: Fourth-Quarter Preliminary Estimate

Brent Meyer

Real GDP remained unchanged from the advance estimate, growing at an annualized rate of 0.6 percent in the fourth quarter of 2007. Downward revisions to private investment and personal consumption were balanced by a positive improvement in net exports. Exports were adjusted up 0.9 percentage point, from 3.9 percent to 4.8 percent, while imports (which subtract from GDP growth) were revised down, from 0.3 percent to -2.2 percent. Personal consumption of durable goods was adjusted down from 4.2 percent growth in the advance estimate to 2.3 percent in the preliminary estimate. Business inventories showed a slightly greater contraction than previously estimated, falling $40.7 billion during the quarter. On net, private inventories lost $33.7 billion in 2007.

Real GDP and Components

2007: IVQ Advance estimate
Quarterly change
(billions of 2000$)
Annualized percent change, last:
Quarter
Four quarters
Real GDP
18.2
0.6
2.5
Personal consumption
39.1
1.9
2.5
  Durables
7.1
2.3
4.3
  Nondurables
8.3
1.4
1.5
Services
24.1
2.1
2.6
Business fixed investment
23.2
6.9
7.3
  Equipment
8.7
3.3
3.6
  Structures
10.8
14.6
15.7
Residential investment
-32.5
-25.2
-18.6
Government spending
11.1
2.2
2.4
  National defense
-0.4
-0.3
1.5
Net exports
26.3
  Exports
17.0
4.8
7.9
  Imports
-9.3
-1.9
0.9
Change in business inventories
-40.7

Source: Bureau of Labor Statistics.

Personal consumption contributed 1.3 percentage points to the percent change in real GDP, compared to the 1.4 percentage points of the advance fourth-quarter estimate. Consumption has added 1.7 percentage points to growth over the  past four quarters. The contribution of real exports was revised up from 0.5 percentage point to 0.6 percentage point, while imports, which had subtracted 0.1 percentage point in the advance estimate, are now adding 0.3 percentage point. Private investment and inventories (together) subtracted 2.0 percentage points off of real GDP growth, compared with a 0.5 percentage point reduction over the past four quarters.

Looking forward, the Blue Chip Panel of economists expect below-trend real GDP growth of 2.2 percent in 2008. Of the 45 panelists, 19 have downgraded their 2009 forecast since last month.  Recent data releases have been somewhat weak, hinting that first-quarter growth will be slow. Indeed, the Blue Chip panel expects first-quarter growth to be 0.5 percent, before steadily rising closer to trend growth by 2009.

Another signal about the near-term growth outlook comes from the Purchasing Managers Index (PMI), calculated by the Institute for Supply Management (ISM). In February, the PMI posted a value of 48.3, a slight contraction in the manufacturing sector (values greater than 50 indicate manufacturing sector expansion, based on survey responses). In their Report on Business, the ISM stated that, while an index level of 50 is the break-even point for the manufacturing economy, “A PMI in excess of 41.1 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 41.1 percent, it is generally declining.” Taken at face value, that would seem a reassuring sign, as it would indicate some GDP growth. However, over time that relationship seems to be losing some explanatory power, either because the last three recessions have been relatively mild, or because of an underlying structural change. Regardless, the ISM manufacturing index is correlated with real GDP, with a correlation coefficient of 0.66. Coming out monthly, the PMI gives economic observers a quicker read.