Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Why Investors Care
| Released on 11/25/08 For Q3.08 Preliminary 0020 | |||||||||||||||||||||||||
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Highlights
Revisions to third quarter GDP were slight but still showed the economy in recession. The Commerce Department's first revision to third quarter GDP lowered the quarter's growth rate slightly to a 0.5 percent decline from the initial estimate of a 0.3 percent dip. The latest number matched the market forecast.
The downward revision to GDP was due to stronger declines in PCEs and nonresidential fixed investment along with slower growth in government purchases and a slightly wider net export deficit. These were partially offset by a somewhat less of a decline in residential investment and in inventories. The most noticeable changes within components were a softening of the inventory drop and the worsening in final sales. Final sales were revised down to minus 1.4 percent from minus 0.8 percent. The third quarter contraction followed a 2.8 percent increase the prior quarter.
Turning to inflation, the GDP price index was unrevised to an annualized 4.2 percent and also equaled the consensus projection. Headline PCE inflation was revised downward slightly to 5.2 percent from 5.4 percent while core PCE inflation also was nudged lower to 2.6 percent from the initial estimate of 2.9 percent.
Year-on-year growth for real GDP stood at 0.7 percent and is down sharply from 2.1 percent in the second quarter.
Today's numbers do not do much to change momentum going forward. The fourth quarter still is likely to be very negative.
The initial estimate for third-quarter GDP came in at minus 0.3 and followed a 2.8 percent boost the prior quarter. Although the decline was not large, the reasons behind it were widespread. The drop in growth was due to a fall in personal consumption, weaker residential investment, a decline in nonresidential fixed investment, slower growth in exports, and a less negative import decline. On the positive side, inventories fell less rapidly and government purchases accelerated. On the inflation front, the GDP price index jumped to an annualized 4.2 percent from 1.1 percent in the second quarter. Headline PCE inflation is still reflecting higher oil prices with a surge to 5.4 percent annualized after a 4.3 percent jump in the second quarter. Core PCE inflation rose 2.9 percent, compared to 2.2 percent the previous quarter.
Real GDP Consensus Forecast for preliminary Q3 08: -0.5 percent annual rate
Range: -0.9 to -0.3 percent annual rate
GDP price index Consensus Forecast for preliminary Q3 08: +4.2 percent annual rate
Range: +4.0 to +4.2 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. |
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It is common to compare quarterly changes at annual rates in the GDP price index. 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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