Advance 4Q GDP -3.8%, Next Update February 27

Advance 4Q2008 GDP came in today at -3.8%. This is the first reading for the period, with the preliminary reading coming February 27 and the final reading in late March. Back in December, analysts called for -6% GDP for 4Q2008 and as recently as this week called for -5.5%. This -3.8% number is more favorable than estimates but it’s far from final. This is the slowest quarterly pace of inflation since 1982, back when average unemployment was 9.7% (vs. 7.2% as of December 2008) and Michael Jackson’s Thriller was released—and went on to become the biggest selling album in history.

As of December 23, 2008, -0.5% GDP was the largest quarterly decline since the tail end of the last recession in 2001. Six days after that release, the NBER declared a recession has been in effect since December 2007. They took pains to counter the popular definition of recession as two consecutive quarters of negative GDP growth, saying that they look at many factors in addition to GDP. GDP growth for the previous four quarters have all been revised downward after their initial readings, and final GDP growth figures for the past four quarters (as well as advance 4Q2008) and GDP press release highlights are below.

4Q2007: -0.2% (final)
1Q2008: +0.9% (final)
2Q2008: 2.8% (final)
3Q2008: -0.5% (final)
4Q2008: -3.8 (preliminary)

The decrease in real GDP in the fourth quarter primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment that were partly offset by positive contributions from private inventory investment and federal government spending. Imports, which are a subtraction in the calculation of GDP, decreased.

Most of the major components contributed to the much larger decrease in real GDP in the fourth quarter than in the third. The largest contributors were a downturn in exports and a much larger
decrease in equipment and software. The most notable offset was a much larger decrease in imports.

Final sales of computers subtracted less than 0.01 percentage point from the change in real GDP after subtracting 0.01 percentage point from the third-quarter change. Motor vehicle output subtracted
2.04 percentage points from the fourth-quarter change in real GDP after contributing 0.16 percentage point to the third-quarter change.
Real GDP increased 1.3 percent in 2008 (that is, from the 2007 annual level to the 2008 annual level), compared with an increase of 2.0 percent in 2007.

The major contributors to the increase in real GDP in 2008 were exports, personal consumption expenditures (PCE) for services, federal government spending, nonresidential structures, and state and
local government spending. These were partly offset by residential fixed investment, PCE for goods, equipment and software, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased. The deceleration in real GDP primarily reflected a sharp deceleration in PCE, a downturn in equipment and software, and decelerations in exports and in state and local government spending that were partly offset by a sharp downturn in imports, an acceleration in federal government spending, and a smaller decrease in private inventory investment.