GDP: Negative 0.3%

GDP was negative in Q3 — worst quarter since Q3 2001 — and the headline number doesn’t even do the extent of the contraction justice:

“Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 0.3 percent in the third quarter of 2008, (that is, from the second quarter to the third quarter), according to advance estimates released by the Bureau of Economic Analysis.  In the second quarter, real GDP increased 2.8 percent.

The decrease in real GDP in the third quarter primarily reflected negative contributions from personal consumption expenditures (PCE), residential fixed investment, and equipment and software that were largely offset by positive contributions from federal government spending, exports, private inventory investment, nonresidential structures, and state and local government spending.  Imports, which are a subtraction in the calculation of GDP, decreased.”

Thank goodness for Federal, State and Local government spending, and for exports:

Real personal consumption expenditures: -3.1% Durable goods  -14.1% Nondurable goods -6.4% Services expenditures +0.6%

Bloomberg notes that the 6.4% rate of decline in spending on non-durable goods, like clothing and food, was the biggest since 1950.


chart via Jake at Econompic

Breakdown of components:

Real nonresidential fixed investment -1.0% Nonresidential structures +7.9% Equipment and software -5.5% Real residential fixed investment -19.1%

Real exports of goods and services +5.9% Real imports of goods and services -1.9%

Real federal government consumption +13.8% National defense +18.1% Nondefense +4.8% Real state and local government consumption +1.4 percent%

Real change in private inventories +0.56% Real final sales of domestic product (GDP less the change in private inventories) decreased 0.8%

The big collapse was in Consumer Spending — it fell 3.1% (annualized). the first decline since 1991, and the weakest Quarter since 1980.

One last thing:

The Bureau emphasized that the third-quarter “advance” estimates are based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3).  The third-quarter “preliminary” estimates, based on more comprehensive data, will be released on November 25, 2008.

Expect 0.3% to get revised downwards — perhaps significantly so . . .


chart via Jake at Econompic


2 Responses to "GDP: Negative 0.3%"

  1. Jabo   October 31, 2008 at 9:33 am

    Keynes, for US; Friedman for the others! how neat.

  2. Bob Bronson   November 9, 2008 at 10:53 pm

    Thanx, Edward, but it appears that some of your math is wrong. your first example, you use 14.6% and -0.6% to somehow get 14.1%.No way, no how, since 1.146 x 0.994 = 1.139, or 13.9%. No biggie,since your explanatory concepts are accurate and useful and thus isbeing sent to our private email list recipients via a copy of this email.We believe that if you are looking to track the business cycle in NIPAdata what is even better than Gross Domestic Purchases is PersonalConsumption Expenditures plus Gross Private Domestic Investmentless the change in private inventories.In other words, ignore: government spending, which is often countercyclical by design; and the change in private inventories (from GrossPrivate Investment), since they are often lagging reflecting involuntaryinvestment; and net foreign trade, which usually lags and can alsobe countercyclical.Also, these all should be computed per capita, or adjusted for growthin the population or the labor force, since they aren’t subject to thebusiness cycle.When that’s done the chart below results, [anyone reading this can requesta copy of the charts which don’t appear in these comments] which is verysimilar to the decline in the Conference Board’s monthly coincident economicindicator index from its nominal peak in Oct ’07, and its per capitapeak in Aug ’07. I’ll send you our historical chart if you’re interested.Respectfully,Bob BronsonBronson Capital Markets Research