GDP: Unchanged from Last Reading

The final revision from the Bureau of Economic Analysis released on Tuesday showed that third quarter 2008 U.S. real GDP growth slipped at an annual rate of 0.5%. The report compares the three-month period that ended Sept. 30 to the preceding quarter.

In the second quarter, real GDP, the broadest measure of the U.S. economy, increased 2.8%. The 0.5% slide in Q3-GDP marked the biggest drop in seven years. The year-over-year [YoY] rate of growth, which came in at 0.7%, was also the weakest since 2001. The decrease primarily reflected a downturn in personal consumption expenditures, a deceleration in exports, and negative contributions from residential fixed investment, and equipment and software.

1. Personal consumption expenditures fell 3.8% (negative 0.2% YoY annual rate) in the third quarter, in contrast to an increase of 1.2% in the second. Spending on autos & light trucks dropped at a 26.6% annual rate. Real spending on apparel fell 13.3%, while services spending dipped 0.1%. Spending by consumers fell below the previously estimated 3.7% decrease making a deduction of 2.75 percentage points from GDP in the third quarter. Third-quarter spending on non-durables fell by 7.1%.
2. Real exports increased at a 3.0% annual rate in the third quarter, compared with an increase of 12.3% in the second. Imports fell at a 3.5% annual rate, recording the fifth quarterly decline in the last six.
3. Real residential fixed investment decreased 16.0%, compared with a decrease of 13.3%. Equipment and software decreased 7.5%.
4. The drawdown of goods in the third quarter was smaller than the drawdown in the second quarter, allowing private inventories to contribute to third-quarter GDP and not a reduction. Inventories added 0.84% to the third quarter after three consecutive quarters of subtraction. Private businesses decreased inventories $29.6 billion in the third quarter, following a decrease of $50.6 billion in the second quarter and a decrease of $10.2 billion in the first.
5. Government spending increased by 13.8%, above the second quarter’s 6.6% increase. State and local government consumption expenditures and gross investments increased 1.3%.
6. Real final sales of domestic product decreased 1.3% in the third quarter, in contrast to an increase of 4.4% in the second.

The GDP chain price index was lowered to 3.9% annual rate in Q3 versus a previous estimate of 4.2% but above the second quarter’s 1.1% increase. The 0.3 percentage point’s revision was due to a lowered jump in PCE price index. Nominal GDP growth was revised down to a 3.4% from a prior estimate of 3.6%.

Tuesday’s final third quarter GDP report showed real gross domestic product contracted at a 0.5% annual rate. NBER declared the U.S. recession started in Dec. ’07, yet real GDP (excluding home building) is still not showing a negative quarter of growth. The third quarter was flat, while the fourth quarter change still registers positive at 1.6%. However, this could change in the fourth quarter, perhaps, by as much as a 6% real GDP annual rate contraction.

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