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Brent Meyer |

Economist

Brent Meyer

Brent Meyer is a former economist of the Federal Reserve Bank of Cleveland.

02.05.07

Economic Trends

Real GDP Fourth-Quarter 2007 Advance Estimate

Brent Meyer

Real GDP grew at an annualized rate of 0.6 percent (weaker than expected) in the fourth quarter of 2007, according to the advance release by the Bureau of Economic Analysis. This marked deceleration from the third quarter's growth of 4.9 percent primarily reflects a slowdown in private investment, personal consumption, exports, and federal government expenditures. Gross private domestic investment decreased 10.2 percent in the fourth quarter, as residential investment continued to lose ground, falling 23.9 percent in the fourth quarter after having fallen 20.5 percent in the third. Business inventories fell $34.0 billion during the quarter, after adding $24.8 billion last quarter. Exports decelerated from an increase of 19.1 percent in the third quarter to a gain of 3.9 percent in the fourth. Imports and federal government consumption were left virtually unchanged from a quarter ago, both series rising only 0.3 percent. Personal consumption rose 2.0 percent in the fourth quarter, compared to 2.8 percent in the third.

Real GDP and Components

2007: IVQ Advance estimate
Quarterly change
(billions of 2000$)
Annualized percent change, last:
Quarter
Four quarters
Real GDP
18.5
0.6
2.5
Personal consumption
40.5
2.0
2.5
  Durables
12.8
4.2
4.8
  Nondurables
11.2
1.9
1.7
Services
18.7
1.6
2.5
Business fixed investment
25.4
7.5
7.4
  Equipment
9.9
3.7
3.7
  Structures
11.6
15.8
16.0
Residential investment
-30.6
-23.9
-18.3
Government spending
13.1
2.6
2.5
  National defense
-0.8
-0.6
1.4
Net exports
12.1
  Exports
13.8
3.9
7.7
  Imports
1.6
0.3
1.4
Change in business inventories
-34.0

Source: Bureau of Labor Statistics.

Personal consumption contributed 1.4 percentage points to the percent change in real GDP, which is slightly off its pace over the past four quarters, when it contributed 2.0 percentage points to growth. The housing correction continued to dampen GDP growth in the fourth quarter, taking away 1.2 percentage points, after having reduced it a similar 1.1 percentage points last quarter. Inventories more than reversed last quarter’s 0.9 percentage point addition, deducting 1.3 percentage points from growth.

Real private inventories fell $3.4 billion at a (seasonally adjusted annualized) rate in the fourth quarter, their first decrease since the second quarter of 2003. Since the beginning of 2004, inventory growth has been trending down and has averaged $27.1 billion since coming out of the last recession, compared to a $43.0 billion quarterly average during the last business cycle.

Looking forward, the Blue Chip panel of economists expect below-trend real GDP growth of 2.2 percent in 2008. Recent data releases have been somewhat weak, especially on the housing side, hinting that first-quarter growth will be slow. Indeed, the Blue Chip panel expects first-quarter growth to be 1.3 percent, before steadily rising closer to trend growth by 2009.