Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Why Investors Care
| Released on 12/20/07 For Q3 Final 2007 | |||||||||||||||||||||||||
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Highlights
Real GDP was unrevised from its prior estimate but there are signs that inflation is not as good as previously estimated. Third quarter real GDP was unrevised at an annualized 4.9 percent from the previous estimate for the quarter and followed a 3.8 percent increase in the second quarter. The consensus forecast that the final revision would be unchanged from the prior estimate of 4.9 percent. For the inflation numbers, the GDP price index was revised upward slightly to an annualized 1.0 percent from the prior estimate of 0.9 percent. The consensus expected no revision from the prior estimate. However, the core PCE price index was revised up to an annualized 2.0 percent from the prior 1.8 percent figure for the third quarter.
The acceleration in third quarter growth was due to stronger growth in exports, PCEs, and in private inventory investment that were partly offset by an upturn in imports, a worsening in residential fixed investment, and a slowing in nonresidential structures.
Year-on-year, real GDP growth stood at 2.8 percent in the third quarter, compared to up 1.9 percent in the second quarter. Year-on-year, the GDP price index came in at 2.4 percent in the third quarter, down from up 2.7 percent in the previous quarter. The core PCE price index growth rate rose at a 1.9 percent pace year-on-year in the third quarter, down from up 2.0 percent in the second quarter.
Overall, the economy was still strong headed into the fourth quarter but markets are now focusing on fourth quarter sluggishness and initial jobless claims came in a little higher than expected this morning. However, the upward revision to the core PCE price index suggests that we may be getting a somewhat warm PCE price index in tomorrow's personal income report.
GDP for the third quarter for the second estimate for the period was revised upward sharply to an annualized 4.9 percent from the initial estimate of 3.9 percent. The upward revision was primarily due to a higher estimate for inventory investment and for stronger net exports. On the inflation front, the GDP price index was revised upward slightly to an annualized 0.9 percent from the initial estimate of 0.8 percent as energy was actually a positive (tugging downward) that period. The core PCE price index was unrevised at an annualized 1.8 percent. Any notable revisions are likely to be in the inventory or next exports components. Markets will be more focused on Friday's more current data for personal income, consumption, and PCE price indexes for November, which will give us a good look at trends within the fourth quarter.
Real GDP Consensus Forecast for final Q3 07: 4.9 percent annual rate
Range: +4.9 to +5.1 percent annual rate
GDP price index Consensus Forecast for final Q3 07: +0.9 percent annual rate
Range: +0.8 to +0.9 percent annual rate
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Real GDP growth is always quoted at a quarterly annual rate. It measures how much the economy has grown over a three-month period. Quarterly growth rates are often volatile; consequently, economists also like to look at the year-over-year growth in GDP. The yearly changes tend to be more stable. |
![[Chart]](chart_1.gif)
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It is common to compare quarterly changes at annual rates in the GDP deflator. These can be volatile, just like the quarterly swings in real GDP growth; as a result, the trend in inflation is better determined by year- over- year changes. |
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