Update: GDP Revised Lower
According to the Bureau of Economic Analysis, US gross domestic product– the output of goods and services produced by labor and property located in the United States – expanded by 1.3% for all of 2008, the weakest rate of economic growth since 2001. For the latest quarter, GDP fell 3.8%, after a contraction of 0.5% in the 3rd quarter. That is the worst rate of growth for any quarter since 1982, and yet it wasn’t as bad as once feared. The number was clearly a positive one, despite its horrendous first impression, as estimates ran as high as -7% in annualized growth for the quarter. The consesus tabbed the quarter for a loss of 5.5%. Here at Alhambra Investments, we called for a decline of 3-4%, based on an analysis on historical consumption data.
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.
Consumer spending fell 3.5% for the quarter, an improvement over the 3.8% decline in the previous quarter. The number includes a 7.1% decline in spending on services, 3.5% in spending on durable goods and 22.4% in outlays on nondurable goods.
Business inventories, which is counted as a positive by the government, increased by $6.2 billion in the quarter. If you remove that 1.32 percentage points associated with inventories and GDP falls to -5.1%.
Report Details (via MarketWatch):
Business investment fell 20.1% in the fourth quarter, subtracting 2.3 percentage points from growth. This marked the largest drop since 1980.
Investments in equipment and software dropped 27.8%, the weakest in 50 years. Investments in structures fell 19.1%, the largest decline since the first quarter of 1975.
The nation’s exports fell 19.7% in the fourth quarter, while imports, which are a subtraction from the calculation of GDP, fell 15.7%. As a result, the narrowing trade deficit added 0.09 percentage point to growth.
Government spending increased 1.9% after having risen 5.8% in the third quarter. Federal spending rose 5.8%.
Defense spending rose 2.1% in the fourth quarter. Non-defense spending rose 14.1%.
Meanwhile, spending by state and local governments fell 0.5%. In all, government spending contributed 0.4 of a percentage point to growth.
Businesses added $6.2 billion to their inventories, on the heels of having cutting them by $29.6 billion in the third quarter. The change in inventories added 1.32 percentage points to growth.
Residential investment fell 23.6% in the fourth quarter, and thus has declined in each quarter for the past three years. Investment in residences subtracted 0.85 of percentage point from the fourth quarter’s GDP growth, compared with 0.60 of point from third quarter growth.
The price index, which measures prices paid by U.S. residents, decreased 4.6% in the 4th quarter, after an increase of 4.5% the previous quarter. Excluding food and energy prices, the core price index increased 1.2% percent, compared with an increase of 2.8% in the third.
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