-6.2%

The Lehmann Letter ©

Today’s GDP numbers were awful (http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=1&Freq=Qtr&FirstYear=2006&LastYear=2008 ). Last month’s preliminary estimate of 2008’s fourth-quarter decline was -3.8%. This has now been revised to -6.2%. A GDP revision of this magnitude is rare and is another sign of the economy’s startling deterioration. (A final revision will appear at the end of next month, but it probably won’t materially improve today’s figure.)

Here are the data:

................................2008-I.... 2008-II...2008-III....2008-IV
Gross domestic product……......0.9.........2.8..........-0.5.......-6.2
Consumption.............................0.9..........1.2.........-3.8.......-4.3
Investment..............................-5.8.........-11.5.........0.4......-20.8
Net exports...............................4.6..........17.5........7.4.........-5.6 Government.............................5.8............6.6….....13.8........6.7

Consumption, investment and trade dragged the economy downward. Only government expenditures propped it up. Investment’s 20.8% plunge reflects business plant and equipment’s sharp drop, compounding residential construction’s continued deterioration. Compared to investment’s contraction, consumption’s shrinkage seems small. But the percentages mask the fact that consumption accounts for three/fourths of GDP. Finally, the decline in net exports signals that the contraction in the rest-of-the-world’s economies has hit us.

These numbers may compel the President’s advisors to revise their forecasts downward. If the economy falls further and longer than they anticipated, it means that they will have to revisit their federal-budget projections. Federal-budget deficits may be bigger and more protracted than initial calculations indicated.

© 2009 Michael B. Lehmann