Real GDP likely fell in Q3

Calculated Risk observes that we already know the values for a significant chunk of 2008:Q3 GDP. And it doesn’t look good.

CR notes that personal consumption expenditures, the biggest single item in GDP, is released by the BEA monthly, so we now know two of the three monthly values that will make up this item for 2008:Q3 GDP. The graph below shows the inference you’d make using the first two months’ release of PCE to estimate the actual quarterly consumption component of GDP. The inference from two months alone looks pretty useful, though as Simon van Norden reminds us, it would be interesting to construct this graph using real-time vintages for the two-month estimates rather than the revised data shown here.

pce_sep_08.jpg

CR interprets:

in general, the two month estimate is pretty accurate. Maybe September was exceptionally strong (very unlikely from anecdotal evidence), or maybe July and August will be revised upwards, but the two month estimate suggests real PCE will decline in Q3 by about 2.4% (annual rate).

Since PCE accounts for about 71% of GDP, this also suggests the change in real GDP in Q3 might be negative. This depends on exports and changes in inventories (investment will be weak).

If accurate, this will be the first decline in PCE since Q4 1991. This is strong evidence that the indefatigable U.S. consumer is finally throwing in the towel.

As I wrote last weekend, the purpose of the bailout proposal still being debated in Congress is not to prevent a U.S. recession– the recession is a done deal. The purpose is to try to prevent the recession we’re already in from being transformed into a severe contraction.


Originally published on September 30, 2008 at Econbrowser and reproduced here with the author’s permission.