GDP: The Recession Is Upon Us

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The Commerce Department gave the preliminary U.S. third quarter GDP, and it has come in at levels which finally reflect the recession we have been saying we are in since the end of Q1.  The new preliminary Q3 GDP was -0.3%.  The good news is that this is not as bad as economists’ estimates of -0.5%.  But about all you can find in that small bit of good news is that you can take comfort that the headline number could have been far worse.

Consumer spending fell by 3.1%, which is the worst in almost 30years.  Due to high prices in the first part of the third quarter, inflation readings were rather high as well.  The price index forpersonal consumption rose by 5.4% after a rise of 4.3% in the secondquarter.  Core inflation was up 2.9%.  That number may come down now that commodity prices have been reeled in, but that is still rather high considering how far down the base prices are right now.

Business investment fell by 1.0%. Final sales were down by 0.8%.  Thescariest number is in disposable income, which was 8.7%.  Thatis perhaps the worst level in most of our lifetimes.

Technically, we have to have two consecutive quarters of negative GDP tobe in a recession. This is the first, and we are certain that therewill be a second.  If you want another prediction, we think that this 0.3% decline will be revised lower as well.  Things are worse than the numbersare indicating.

Jon C. Ogg
October 30, 2008