U.S. Q3 GDP fell 0.5%, biggest decline since 2001

Posted Dec 23rd 2008 10:40AM by Joseph Lazzaro
Filed under: Forecasts, Bad News, Economic Data, Recession

There's been no change in the U.S. economy's pulse, according to the most recent GDP data from the U.S. Commerce Department.

The U.S. economy contracted at a 0.5% annual rate in Q3, the Commerce Department announced, in its final reading on the quarter. The rate was unrevised from the previous estimate, but it was the weakest quarterly growth rate since Q1 2001.

Economists surveyed by Bloomberg News had expected the economy to contract at a 0.5% annualized rate in Q3.

One danger sign for the economy: consumer spending, which accounts for 60-65% of U.S. GDP, declined at a revised 3.8% annualized rate in Q3, worse than the 3.7% annualized decline estimate announced earlier.

Economist David H. Wang said the final Q3 GDP was a wash. "GDP came in as expected, but we can see the clear, continued drop in consumer spending, which is indicative of a prolonged recession," Wang said. "So it's stimulate with glee, to make the recession flee."

One bright spot concerns inflation: core consumer inflation, which excludes the often-volatile food and energy component, was revised lower to a 2.4% annualized rate in the quarter, from the 2.6% previous annualized rate. The 2.4% rate is roughly within the U.S. Federal Reserve's 'comfort zone' for inflation. Wang called the inflation data "very tame."

Further, Wang expects the world's largest economy to shrink at a troubling 4.0% rate in Q4, and to keep contracting through at least through the end of Q2 2009. That would mean a recession of 18 months - - the longest U.S recession since 1947.

Economic Analysis: As economist Wang noted, there were no surprises in the final Q3 GDP report. Even so, at least inflation remains a non-issue, clearing the way for the much-needed fiscal stimulus and quantitative easing (monetary stimulus) to get the U.S. on a sustainable growth track again. Given current economic fundamentals, at this juncture the best one can expect is a recovery by Q3 2009, although that may be somewhat optimistic.

Tags: cpi, fiscal stimulus, gdp, inflation, inthenews, quantitative easing, U.S. economy

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12-30-2008 @ 6:29AM

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