• Home ::
• Fundamental ::
• Analysis Reports ::
• Daily Global Commentary

Daily Global Commentary

Decline in Economic Activity Larger Than Advance GDP Estimate

Sun, Mar 1 2009, 22:13 GMT
by Northern Trust Economic Research Department

Northern Trust  |  View company's profile

Vote:

93e01cbd-f473-4934-bd46-0ae409582368

7

0

• Send
• Print
• Add To
• Rss

Decline in Economic Activity Larger Than Advance GDP Estimate

Real gross domestic product (GDP) declined at an annual rate of 6.2% in the final three months of 2008, which is a significantly larger drop compared with the advance estimate of a 3.8% contraction. As chart 1 indicates, the size of the decline in the fourth quarter matches very few instances in the post-war period.

All major components of GDP were revised down in the preliminary report, excluding residential investment expenditures (-22.2% vs. -23.6% in advance estimate). The largest downward revision was from inventories (-$19.9 billion vs. $6.2 billion). Consumer spending fell at an annual rate of 4.3% in the fourth quarter (advance estimate was -3.5%) putting the year-over-year decline at 1.6%, the largest decline since the third quarter of 1951.

Equipment and software spending dropped at an annual rate of 28.8%, with the year-to-year decline at 11.2%, the largest drop since the third quarter of 1975 (see chart 3).

Exports and imports of goods and services dropped at a faster clip than the advance estimate. The trade deficit in 2008 was $388.2 billion, a sharp reduction from a high of $616.6 billion in 2005 (see chart 4).

From a historical perspective, real GDP has declined 1.7% from the peak value in 2008:Q2, which is different from the National Bureau of Economic Research (NBER) date of December 2007 as the peak of the business cycle. The NBER’s dating coincides with real GDP peak for nearly all business cycles with the exception of the recessions which began in 1960 and 2007. The 2007 and 2008 are subject to more revisions in the future which could result in the GDP peak estimate coinciding with the NBER’s dates. For chart 5, in regards to the computation of the decline in real GDP for the 1960 and 2007 recessions, the peak quarters are slightly different from the NBER dates. The main message from chart 5 is that if the current economic downturn ends in the third quarter of 2009 as we expect, the drop in real GDP is likely to exceed the median GDP decline of 1.9% seen during recessions in the post-war period.

• Download Full Daily Global Commentary

Published on  Sun, Mar 1 2009, 22:16 GMT

Vote:

93e01cbd-f473-4934-bd46-0ae409582368

7

0

• Send
• Print
• Add To
• Rss