US GDP shrinks 0.3% in Q3

By Edward Harrison On Oct 30, 2008

I won’t be able to comment here until later today when I will update this post. But I wanted to report that U.S. GDP shrank 0.3% in Q3, less than the 0.5% median forecast. Now, when it comes to government statistics like GDP, the devil’s in the details. One detail is the inflation deflator, which was much higher than in the past. So, on the face of it, this number is more accurate than previous readings we have seen.

Below are a few snippets from the Bloomberg story on the data. I will be updating this post in the afternoon with my own analysis and charts. Needless to say the data confirm the U.S. is now in recession:

The slump in growth last quarter was the biggest since the third quarter of 2001. The economy contracted at a 0.2 percent pace in the last three months of 2007.

Median Forecast

GDP was forecast to drop at a 0.5 percent pace in the third quarter, according to the median forecast of 75 economists surveyed by Bloomberg News. Estimates ranged from a 1.2 percent rate of expansion to a contraction of 1.9 percent.

The report is the first for the quarter and will be revised in November and December as more information becomes available.

Consumer spending dropped at a 3.1 percent annual pace, the first decline since 1991 and the biggest since 1980, after President Jimmy Carter imposed credit controls. The median forecast was for a 2.4 percent drop.

The 6.4 percent rate of decline in spending on non-durable goods, like clothing and food, was the biggest since 1950.

Cutbacks in investments in business equipment and less spending on residential construction projects also contributed to last quarter’s contraction.

A narrower trade deficit and a smaller decline in inventories prevented a deeper contraction. Excluding those two categories, the economy would have contracted at a 1.8 percent pace, the most since 1991.

More Inflation

The report also showed what may be the last burst of inflation before the economic slowdown forces companies to limit price increases. The price gauge rose at a 4.2 percent pace last quarter, the biggest gain in 17 years. Costs tied to consumer spending and excluding food and energy, increased 2.9 percent, the most in two years.

Source
U.S. Economy Shrank in the Third Quarter as Spending Dropped – Bloomberg