Q4 GDP: El Stinko!

Wednesday, January 30, 2008 | 10:17 AM

Q4_07_wsj_gdp The Advance GDP report was released today, and it came in at half of the 1.2% consensus: 0.6%.  This is a measure of Real growth, and is supposed to be adjusted for inflation.

A few highlights of the data:

• Consumption slowed to 2% from 2.8% in Q3; I suspect that only partly reflects real growth, meaning its partly inflated by price rises;

• U.S. exports continue to increase: Up 3.9% for the Q. Overseas trade added nearly half a point to Q4 GDP;

• Overall, the US economy grew 2.2% for the full year 2007 -- the slowest since 2002 (1.6%)

• Inventory  build, which drove the 4.9% Q3 data, was totally absent. It sliced 1.25% from GDP, after adding nearly a point in Q3.

• Inflation remains sticky: Price index for personal consumption expenditures rose by 3.9% in Q4 after a tepid 1.8% in Q3. This was  the second highest PCE # since 2001

• Q4 business spending rose 7.5%. Investment in structures went 15.8% higher (which seems an awful lot to me); Equipment/software purchases rose by 3.8%.

• Biz spending decelerated in the fourth quarter from Q3's hotter 9.3%.

None of this is a surprise to us, but I have two takeaways:

1) The Fed is likely to cut 50 bps today.

2) If we do, as my odds suggest, have an official recession, it likely hasn't started yet,  at least according to the traditional measure: Two consecutive quarters of contracting GDP.

However, there are other ways to measure a recession. As to the official definition of what a recession is, consider Jeff Saut's comments earlier this week:

"The most accurate definition is proffered by the National Bureau of Economic Research (NBER) that frames it this way: “A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale – retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.” Rare indeed, as seen in the recession charts we included in last week’s report and have attached again this week.

By studying the charts, one observes that until recently recessions have been a normal conclusion to the business cycle. As seen, however, recently this has not been the case. In past missives we have railed at the central banks, as well as the politicians, for their continuing efforts to prevent the normal business cycle from playing. They did it again last week when the Federal Reserve panicked and cut interest rates by 75 basis points with a concurrent $150 billion economic stimulus package from the politicos. And if this is a typical recession, such maneuvers will likely ameliorate the downturn. But, what if this isn’t “your father’s typical recession?”

As always, thats smart stuff from Jeff.

Q4 2007 GDP


graphic courtesy of Barron's econoday

Note that this is the first of 3 GDP releases, and may subsequently be revised up or down.


BEA/Commerce Department, January 30, 2008

“Not your father’s typical recession?!”
Raymond James & Associates,, January 28, 2008

U.S. Economy Expanded 0.6 Percent, Less Than Forecast
Shobhana Chandra
Bloomberg, Jan. 30 2008

GDP Growth Slowed in 4th Quarter, As Housing Continues Its Drag
WSJ, January 30, 2008 10:05 a.m.

Wednesday, January 30, 2008 | 10:17 AM | Permalink | Comments (54) | TrackBack (0)
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Shouldn't the Fed have done all their lowering in last week's announcement? Nothing they do now will surprise me, however. Rather than a seaworthy captain with steady hand on the wheel, we've got a magician pulling rabbits out of his hat when we least expect it. I find the Fed's use of the "surprise" element very unprofessional and very unsettling.

Posted by: karen | Jan 30, 2008 11:12:14 AM

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