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Economy in Brief

U.S. 3Q'08 GDP Fell Modestly
by Tom Moeller October 30, 2008

U.S. real GDP fell a modest 0.3% (AR) last quarter after 2.8% growth during 2Q. Consensus expectations had been for a decline at a 0.5% rate. The decline last quarter mirrored a 0.2% decline during the fourth quarter of last year. The y/y rate of growth of 0.8% was the weakest since the end of the 2001 recession.

Real final sales to domestic purchasers were notably weak in 3Q as they posted a 1.8% (AR) decline. That was the largest quarterly decline since the end of the 1990-91 recession. The year-to-year dip of 0.1%, while modest, was the first since 1991.

Real personal consumption declined at a 3.1% (0.0% y/y) annual rate, reversing a 1.2% rise during 2Q. The 2Q gain presumably was fueled by tax rebate checks but the lift seems to have been slight. Spending on autos & light trucks fell at a 25.6% (-14.7% y/y) annual rate after declining at a 19.7% rate during 2Q. Spending on furniture & other household equipment fell at a 7.6% rate (+2.7% y/y) and the decline reversed roughly half of the 2Q increase. Spending on apparel fell at an 11.0% rate (-0.4% y/y) and that reversed all of the 2Q jump. Spending on consumer services also weakened to a 0.6% growth rate. That about matched the 2Q rise but the y/y change of 1.3% was the weakest since 1981. Growth in real PCE subtracted 2.3 percentage points from 3Q real GDP growth after a 0.9 point add during 2Q.

Residential construction fell again, last quarter at a 19.1% (-21.3% y/y) annual rate after a 13.3% rate of decline during 2Q. The 3Q drop subtracted 0.7 percentage points from GDP growth.

Growth in business fixed investment fell for the first time since fourth quarter, 2006. The 1.0% decline (+1.8% y/y) followed 2.5% growth during 2Q, a 4.9% rise during 2007 and roughly 7.5% growth in 2006 and 2005. Equipment investment repeated its 2Q performance and declined at a 5.5% rate (-2.6% y/y). Conversely, structures investment was firm again and rose at a 7.9% annual rate (10.8% y/y).

An improved foreign trade deficit again was the main source of lift to GDP growth, though the 1.1 percentage point addition was almost a third of that in 2Q. Exports grew at a slower 5.9% rate (6.9% y/y), half that in 2Q. Growth in imports weakened with the slowdown in overall economic growth. They fell at a 1.9% rate (-3.1% y/y).

Inventory accumulation added 0.6 percentage points to GDP growth after three consecutive quarters of subtraction.

Spending by governments was strong again and the 5.8% (3.1% y/y) rise was the quickest since early 2003.

The GDP chain price index surged at a 4.2% annual rate. The accelerated rate of increase owed to a 5.4% jump in the PCE price index which was fueled by higher energy prices. Capital spending prices rose at an accelerated 4.2% rate (2.2% y/y) while the residential investment price deflator declined for the fourth straight quarter (-1.8% y/y).

Fed, Central Banks in Brazil, Mexico, Korea and Singapore, Announce Swap Lines and the Fed's announcement can be found here.

Chained 2000$, % AR 3Q '08 (Advance) 2Q '08 3Q Y/Y 2007 2006 2005
GDP -0.3 2.8 0.8 2.0 2.8 2.9
  Inventory Effect 0.6 -1.5 -0.4 -0.4 0.0 -0.2
Final Sales -0.8 4.4 1.3 2.4 2.8 3.1
Foreign Trade Effect 1.1 2.9 1.7 0.6 0.2 0.0
Domestic Final Demand -1.8 1.3 -0.1 1.8 2.6 3.1
Chained GDP Price Index 4.2 1.1 2.7 2.7 3.2 3.3
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