Q3 GDP-Adv.
Updated 30-Nov-08 20:07 ET
Highlights
Key Factors
- Real personal consumption expenditures (PCE) fell at a 3.7% annual rate in the third quarter. This is the critical component for GDP, and the outlook is not good. October real personal consumption expenditures fell 0.5%, suggesting that another large decline in real PCE in the fourth quarter is likely.
- Net exports added 1.1% to real GDP growth in the third quarter. That is about the average boost to GDP over the past few years. It isn't going to continue, however, as demand for exports is weakening due to soft overseas economies and the strengthening in the dollar.
- Nonresidential investment has weakened. Nonresidential construction added to GDP in the third quarter, but that is not likely to continue. Investment in software and equipment fell for the third straight quarter and early signs are the the fourth quarter will be very weak.
- Residential construction trends remain, not surprisingly, very weak.
- Inventories and government spending may help the fourth quarter GDP number, but the overall trends in the key components are very bad heading into the final quarter of the year. Fourth quarter real GDP will be down big.
Big Picture
- The trends in the economy were moderately poor through the summer. Then, in September, the trends tanked along with the stock market. Some tech firms noted a significant dropoff in demand right after the mini-panic of mid-September. These worsening trends will be apparent in the fourth quarter GDP numbers, and probably into 2009 as well. Consumer spending is weakening and will only take a significant turn for the better once the declines in payroll moderate. Business investment is also in retreat. The stronger dollar is now weakening export demand as well. A lot now depends on overall psychology and perceptions of how well the government responds to the financial market and other problems such as exist in the auto industry. There is not yet much concern about the huge looming federal deficits, but that will probably become a topic as the next fiscal stimulus package is enacted in 2009. The economic outlook is now as much a function of government action as it is of the traditional correlations and trends among macro-economic variables.
| Category |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
| GDP |
-0.5% |
2.8 |
0.9 |
-0.2 |
4.8 |
| Inventories (change) |
-$29.1B |
-$50.6 |
-$10.2 |
-$8.1 |
$16.0 |
| Final Sales |
-1.4% |
4.4 |
0.9 |
0.8 |
4.0 |
| PCE |
-3.7% |
1.2 |
0.9 |
1.0 |
2.0 |
| Nonresidential Inv. |
-1.5% |
2.5 |
2.4 |
3.4 |
8.7 |
| Structures |
6.6% |
18.5 |
8.6 |
8.5 |
20.5 |
| Equipment & Software |
-5.7% |
-5.0 |
-0.6 |
1.0 |
3.6 |
| Residential Inv. |
-17.6% |
-13.3 |
-25.1 |
-27 |
-20.6 |
| Net Exports |
-$352.3B |
-$381.3 |
-$462.0 |
-$484.5 |
-$511.8 |
| Export |
3.4% |
12.3 |
5.1 |
4.4 |
23.0 |
| Imports |
-3.2% |
-7.3 |
-0.8 |
-2.3 |
3.0 |
| Government |
5.4% |
3.9 |
1.9 |
0.8 |
3.8 |
| GDP Price Index |
4.2% |
1.1 |
2.6 |
2.8 |
1.5 |
