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Economy in Brief

U.S. 1Q'08 GDP Stable at 0.6%, Two Quarter Growth At Recession Level
by Tom Moeller April 30, 2008

U.S. real GDP growth during 1Q'08 remained stable with the prior quarter at 0.6%, about as expected. Together, growth during the last two quarters was the weakest since the end of the last recession in 2001.

Negative 0.4% 1Q growth in final sales to domestic purchasers was the first sub-zero reading since the earlier recession in 1991.

Residential construction led that slip with a 26.6% (-21.2% y/y) drop which was the fastest rate of decline since the recession in 1981. For the quarter it alone reduced overall real GDP growth by 1.2 percentage points.

Business fixed investment also was weak and posted a 2.5% (+5.8% y/y) decline which was its first negative print since 4Q'06 and the largest negative reading since early 2004. Overall it reduced 1Q GDP growth by 0.3 percentage points. The decline was paced by a 6.2% (+11.5% y/y) decline in investment in structures while equipment spending fell at a 0.7% rate (+3.3% y/y). That decline represented a shortfall in investment in transportation equipment while growth in information processing equipment and also industrial equipment remained positive.

Growth in real personal consumption also weakened to just 1.0% (1.9% y/y) which was its weakest since the recession year 2001. Fewer purchases of autos & light trucks reduced spending here at an 11.4% (-4.3% y/y) while spending on furniture & other household equipment also fell. In the nondurable area, spending on food as well as gasoline both dropped. Spending on services actually accelerated slightly due to faster growth in spending on household operation. Growth in real PCE added 0.7 percentage point to 1Q real GDP growth.

Earlier sizable additions to GDP growth from an improved foreign trade deficit eased to just a 0.2 percentage point contribution in 1Q. The lessened addition was due to weaker growth in exports of 5.5% after an 8.1% rise last year and an 8.4% gain in 2006. Imports grew at a 2.5% rate after a 1.9% rise last year and a 5.9% 2006 rise.

Faster inventory accumulation added 0.8 percentage points to 1Q GDP growth but that only made up some of the 1.8 point subtraction in 4Q.

The GDP chain price index grew at a 2.6% annual rate which was its fastest gain in three quarters. The PCE price index rose at a 3.5% rate (3.4% y/y) which was down slightly from the 3.9% rise in 4Q. Less food & energy consumer prices rose at a 2.2% rate which was stable with growth during the prior four years. The price index for business fixed investment fell a slight 0.1% which was the third decline in the last four quarters but prices for residential investment fell at a 2.3% rate which was the fastest rate of decline since 1970 (no typo). Quicker growth in the overall GDP price index was due to exports (9.0% y/y) and government consumption (6.9% y/y).

Chained 2000$, % AR 1Q '08 4Q '07 3Q '07 Y/Y 2007 2006 2005
GDP 0.6 0.6 4.9 2.5 2.2 2.9 3.1
  Inventory Effect 0.8 -1.8 0.9 0.1 -0.3 0.1 -0.2
Final Sales -0.2 2.4 4.0 2.4 2.5 2.8 3.3
Foreign Trade Effect 0.2 1.0 1.4 1.0 0.7 -0.1 -0.2
Domestic Final Demand -0.4 1.3 2.5 1.4 1.8 2.7 3.3
Chained GDP Price Index 2.6 2.4 1.0 2.2 2.7 3.2 3.2
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