Greg Gerber posted on February 28, 2008 10:34
NEW YORK -- The second, or preliminary, estimate of fourth-quarter GDP growth was left unrevised from the advance estimate of 0.6 percent annualized growth.
Thus, the data continue to show a marked slowing in growth from the 4.9 percent surge recorded in the third quarter. Expectations had been for a slight upward revision to fourth-quarter growth to 0.8 percent.
The report did indicate some shifts in the composition of output that, on net, implied a slightly weaker picture of the economy at the end of 2007. All of the key areas of domestic spending growth were revised down slightly.
The biggest downward hit was in business investment where the initial increase of 7.5 percent was revised down to 6.9 percent. The decline in residential investment was deepened to 25.2 percent from 23.9 percent. The downward revision to consumer spending was relatively minor, dropping to 1.9 percent from 2 percent previously. Today’s report also indicated a slightly greater drawdown in inventories in the quarter.
The main offset was a downward revision to imports, resulting in a decline of 1.9 percent rather than a small increase of 0.3 percent that had been previously reported. (Imports are subtracted from the add-up because GDP is meant to reflect only domestic U.S. production). An additional offset was also provided by export growth, which was revised up to 4.8 percent from the previously reported 3.9 percent.
Growth in the core PCE deflator for the fourth quarter was left unrevised at an annualized 2.7 percent.
Negligible growth is likely to continue through the first half of 2008 given the combination of continuing declines in housing construction, tight credit conditions and higher energy prices. Indications of weakening employment growth will also impede household spending. These factors could even result in a quarter of declining activity.
However, the recently passed stimulative fiscal package is expected to contribute to a bounce in growth in the third quarter. But, for the rebound in growth to be sustained beyond that, there will need to be an easing in the credit tightening in the next couple of quarters.
To help achieve a better tone in financial markets, the Fed has been aggressively cutting interest rates and comments from Fed Chairman Bernanke yesterday indicate a preparedness to ease policy further.