The Bureau of Economic Analysis released the advance estimate of third quarter GDP this morning. The headline is:
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.
This is the last consequential piece of macroeconomic news before the election, and it doesn't do much for either side. The headline number is not good, but it is not nearly as bad as the media frenzy on economic news since mid-September would suggest. The changes in the composition are largely what we would expect based on economic policy this year -- consumption and housing investment should decline -- and government spending and net exports should increase.
For those looking to declare a recession, the second appearance of negative growth in a quarter, however slight, may be the last piece of the puzzle that was needed. Growth rates over the last 4 quarters have been -0.2, 0.9, 2.8, and -0.3, for an annual rate of 0.8 percent. That's nothing spectacular, but it's not a decline. I would still wait for another full quarter of data to come in (i.e., until March 2009) before declaring a recession.
I don't think that the NBER recession dating committee will rush to make the call. This is the advance estimate -- it gets revised twice over the remainder of the year and is subject to more fundamental revision on a five-year cycle. Having to un-declare the recession if the economy rebounds more quickly than anticipated or if the data get revised would undermine the committee's credibility.
Wait...
How could this be? Haven't we been in a recession for over a year? Responsible journalism would hold all the pundits and pseudo-economists who called the turn early accountable. Then again, I was naive enough to use the words responsible and journalism in the same sentence.
Onward Comrades!
Numbers tell a story
but you have to look beneath the surface. A critical thinking CEO friend of mine got it right this morning . . . I'm going to steal his words to place them here (we're part of an elite investor service group -- yes that horrible thing to be, "elite", but hey, information is power -- anyway, I can't link directly to it):
"The Street is all Happy Happy Joy Joy over the headline GDP number of -0.3%, less than feared (-0.5). It's still the largest contraction in seven years. I do notice that all the bulletins have been light on the internal details, which don't look good. The GDP would have been roughly -1.4% without increased government spending and a "decline in inventory drawdown".
The GDP number would have been much worse, except that federal government spending shot up at a 13.8% annual rate. That's doubled from the previous quarter's 6.6% rate, and added 1.1% to the GDP. Backing out to the previous quarter's rate would have given us a GDP change of -0.9%.
Second, private inventory investment contributed to growth, and was responsible for adding 0.56% to the GDP. Adding to inventory going into a recession is not a good thing. Real final sales of domestic product, which is GDP with inventory backed out, was -0.86%. The "decline in inventory drawdown" now will carry forward to the next quarters as a negative value, a drag on future GDP.
Actual consumer spending was down 3.1%, the sharpest drop since 1980. A drop in consumer spending along with a rise in inventory does not bode well for the next quarter."
But hey, it will be a great time to buy SUVs for all the kids ;-)
Not so bad
I was expecting a bigger turndown than .3%. It doesn't warrant terms I've seen like "sharp contraction". Good news is good news.
The "shock" phase of the contraction seems to have ended. You don't see panicked looks on CNBC faces anymore. That hints that instead of Armaggedon, we face one more recession, maybe worse than last time, but within the range of historical experience. We may hope...
This is so amusing
" You don't see panicked looks on CNBC faces anymore"
Oh yeah, "the faces on CNBC" leading indicator. I think I'll go with that one.
my input
You may see all kinds of revisions when new people take over exec branch in washington.
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