Unexpected Economic Growth

Kurt Brouwer August 28th, 2008

The Commerce Department revised its earlier report on economic growth in the second quarter, but the surprise — in this case — was on the upside.

U.S Economy: GDP Exceeds Initial Estimates on Exports (Bloomberg, August 28, 2008, Courtney Schlisserman and Timothy R. Homan)

…Gross domestic product increased at a 3.3 percent annual pace, compared with the initial estimate of 1.9 percent, the Commerce Department said today in Washington. Trade contributed the most to U.S. growth in almost three decades.

…The smallest trade deficit in eight years was the biggest contributor to growth last quarter. The trade gap narrowed to a $376.6 billion annual pace and added 3.1 percentage points to growth, the most since 1980. Excluding trade, the economy would have expanded at a 0.2 percent pace after growing 0.1 percent in the first three months of the year.

…Consumer spending, which accounts for more than two-thirds of the economy, grew at a revised 1.7 percent annual rate in the second quarter, compared with the 1.5 percent estimated last month and 0.9 percent for the first three months of the year.

The longest expansion in consumer spending on record will probably end this year, according to economists surveyed by Bloomberg earlier this month. Retail sales fell in July for the first time in five months, led by a slump in auto purchases, according to Commerce data.

…A smaller decline in stockpiles contributed to the larger- than-forecast gain in growth. Inventories fell at a $49.4 billion annual rate from April through June, down from a $62.2 billion first estimate. Still, the draw-down subtracted 1.44 percentage points from growth.

This is interesting.  Obviously, growth at an annualized rate of 3.3% poses a problem for those who say we are already in a recession.  Perhaps they believe this will get revised downward later in the year.  Or, maybe they believe the recession began and ended in the fourth quarter of 2007.  Or, whatever…

There are still plenty of economic problems ahead of us and we could see sluggish or even negative GDP growth later in the year.  Nonetheless, this is a devastating report for those who would have us believe we are in the worst economic crisis since the Great Depression.

For more on this, see these posts: How to Squelch an Economic Recovery and California Taxes Going Up and The Path to Prosperity in America.

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4 Responses to “Unexpected Economic Growth”

  1. # Rebecca Wilderon 28 Aug 2008 at 11:23 am

    Interesting that real Gross Domestic Income (GDI) contracted in Q4 and Q1 2008, and posted just 2% annualized growth in Q2. Which one is correct? Clearly, one must be revised upward and/or the other downward.

  2. # Kurt Brouweron 28 Aug 2008 at 4:11 pm

    Rebecca — Your numbers are off a bit. Real GDP growth for Q2 was 3.3% as shown in this article. Q1 2008 was + 0.9%. Q4 2007 was
    -0.2%.

    The only negative quarter we have had — so far — was Q4 2007 and that was barely negative.

  3. # Rebecca Wilderon 28 Aug 2008 at 5:34 pm

    Hi Kurt,

    I am sorry, but my numbers are not off. I am talking about Real Gross Domestic Income (GDI), not Real Gross Domestic Product (GDP). Theoretically, they should be the same, but GDI is measure using income data and GDP is measured using expenditure data. It is interesting because the two, which should be the same, paint different pictures.

    See this WSJ blog: http://blogs.wsj.com/economics/2008/08/28/dont-turn-off-recession-siren-yet/

    The Fed paper by Jeremy Nalewaik posits that GDI growth is a better predictor of downturns than is GDP growth. Hence, the interesing difference that I stated above.

    Thanks, Rebecca

  4. # Kurt Brouweron 29 Aug 2008 at 7:51 am

    Thanks for the clarification Rebecca and good points. I misread your acronym to read GDP, not GDI. And, you’re right there is a divergence between GDI and GDP. Thanks for the link too.

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