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Brent Meyer |

Economist

Brent Meyer

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

03.31.08

Economic Trends

Real GDP: Fourth-Quarter 2007 Final Estimate

Brent Meyer

Real GDP, according to the final estimate by the Bureau of Economic Analysis (BEA), was unchanged from both the preliminary and advance estimates, rising at an annualized rate of 0.6 percent in the fourth quarter. While the overall growth rate in GDP remained identical to the advance estimate, the performance of its underlying components changed. Personal consumption was revised up from the 2.0 percent of the advance release to 2.3 percent in the final. After incorporating more complete information about the fourth quarter, net exports improved as well. Imports (which subtract from GDP) fell from 0.3 percent in the advance release to –1.4 percent in the final. Final exports rose 6.5 percent, an upward adjustment of 2.6 percentage points over the advance estimate. Offsetting these improvements to growth, both business and residential investment deteriorated with the revisions. Business fixed investment was adjusted down from 7.5 percent to 6.0 percent in the fourth quarter. Also, residential investment worsened, according to the final estimate, from –23.9 percent to –25.2 percent.

Real GDP and Components

2007: IVQ Advance estimate
Quarterly change
(billions of 2000$)
Annualized percent change, last:
Quarter
Four quarters
Real GDP
16.8
0.6
2.5
Personal consumption
46.9
2.3
2.6
  Durables
6.2
2.0
4.2
  Nondurables
7.4
1.2
1.5
Services
32.9
2.8
2.8
Business fixed investment
20.5
6.0
7.1
  Equipment
8.2
3.1
3.6
  Structures
9.2
12.4
15.1
Residential investment
-32.4
-25.2
-18.6
Government spending
9.8
1.9
2.3
  National defense
-0.7
-0.5
1.5
Net exports
29.9
  Exports
22.9
6.5
8.4
  Imports
-7
-1.4
1.0
Change in business inventories
-48.9

Source: Bureau of Labor Statistics.

Fourth-quarter corporate profits were released along with the final GDP estimate. Nominal pretax corporate profits decreased $52.9 billion during the quarter, following a $20.5 billion loss in the third quarter, the first back-to-back decrease since the fourth quarter of 2000 and the first quarter of 2001. Profits in the financial sector fell $74.4 billion, their largest nominal quarterly loss ever, even without factoring in recent subprime write-downs. According to the BEA release, “asset write-downs and loan-loss provisions…are not expensed in current-production profits in the National Income and Product Accounts.”

Real private inventories decreased $18.3 billion in the fourth quarter, according to the final estimate, following an accumulation of $30.6 billion last quarter. Initially, the advance release pegged the loss at $3.4 billion. Falling inventories could be taken as a sign that businesses see weaker demand in the near future and do not want to be stuck with stockrooms filled with unsold products. While this may not bode well for the near term, stark inventories help in the recovery process. As consumer demand returns, companies respond by ramping up production at a quicker pace than they would if their warehouses were full.

Looking forward, the Blue Chip panel of economists continues to trim its growth forecasts over the near term. The panel currently (as of March 10, 2008) expects first-quarter GDP to grow at an annualized rate of 0.1 percent. Four months ago, the consensus estimate was for 1.9 percent growth in the first quarter. Snapback, aided by the fiscal stimulus package, occurs in the third quarter of 2008, and GDP growth starts to return to trend by the end of 2009.