3Q GDP -0.3%, First Reading Signals “Official” Recession

Third quarter GDP came in today at -0.3% versus expectations of -0.5%. To hear CNBC anchors describe it, you might be fooled into thinking this is a good reading. But this is the largest quarterly decline since the tail end of the last recession in 2001. Negative readings are the path to recession and this is a preliminary reading that’s subject to revisions in the coming months. GDP growth for the previous three quarters have all been revised downward after their initial readings. For the past three quarters the Final GDP growth figures are as follows, and 3Q initial is shown as well:

4Q2007: -0.2% (final)
1Q2008: +0.9% (final)
2Q2008: 2.8% (final)
3Q2008: -0.3% (initial)

A recession is defined as two consecutive quarters of negative GDP growth, but all the revisions are why it’s so hard to call a recession until after the fact. Looking at the past few quarters of GDP data, it’s interesting to see that the NBER won’t be calling a recession since Q1 squeaked by as positive. And while the GDP data (and official definition) protects the more slippery politicians from admitting we’re in a recession, most people agree that we’re feeling the pains of a recession. Next Friday we have the non-farm payroll report which will likely continue the trend of job losses every month in 2008. As of the last jobs report on October 3, the economy had lost 760k jobs and the unemployment rate was 6.1%.