Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Why Investors Care
| Released on 2/28/08 For Q4 Preliminary 2007 | |||||||||||||||||||||||||
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Highlights
Real GDP in the final quarter of 2007 was unrevised overall but the composition was slightly more favorable. For the first revisions to fourth quarter GDP, real GDP was unrevised at an annualized 0.6 percent and followed a robust 4.9 annualized increase in the third quarter. The latest number came in just below the consensus forecast for a 0.7 percent gain. The fourth quarter GDP price index was revised up slightly to 2.7 from the initial estimate of 2.6 percent and compared to the market forecast for a 2.6 percent rise. Within GDP, inventory investment was revised down while final sales were nudged up, largely on lower imports.
For the fourth quarter overall, the deceleration in growth primarily was due to a downturn in inventory investment and decelerations in exports, in PCE, and in federal government spending that were partly offset by a downturn in imports.
The latest price numbers still show inflation picking up significantly last quarter at the consumer level. The headline PCE price index growth rate came in at up 4.1 percent in the final quarter, jumping from up 1.8 percent in the third quarter. However, the core PCE price index growth rate firmed at up 1.7 percent in the final quarter, compared to up 2.0 percent in the third quarter.
Year-on-year, real GDP growth slipped to up 2.5 percent in the fourth quarter up 2.8 percent in the third quarter. Year-on-year, the GDP price index firmed to up 2.6 percent in the fourth quarter from up 2.4 percent in the prior quarter.
Today's report does little to change the view that the economy is flat while inflation is still too high. Given how close the numbers were to expectations, there is likely to be little reaction. The moderate boost in today's initial jobless claims numbers is likely to get more attention.
GDP growth slowed sharply in the final quarter of 2007, easing to an annualized 0.6 percent, following a robust 4.9 percent surge in the third quarter. In contrast, higher oil prices led to a jump in the GDP price index to an annualized 2.6 percent, following a 1.0 percent rise in the third quarter. A new focus of the Fed, the overall PCE price index jumped to an annualized 3.9 percent from 1.8 percent in the third quarter. The core PCE price index also quickened but not as much, rising an annualized 2.7 percent in the fourth quarter, after increasing 2.0 percent the prior quarter. While the fourth quarter numbers are a little dated, markets will continue to look at the real GDP figures for any notable imbalances and whether the low number gets revised down into negative territory - which is possible given the size of average revisions. But for now, the markets are expecting an incremental upward revision to GDP growth for the quarter.
Real GDP Consensus Forecast for preliminary Q4 08: +0.7 percent annual rate
Range: +0.5 to +2.6 percent annual rate
GDP price index Consensus Forecast for preliminary Q4 08: +2.6 percent annual rate
Range: +2.6 to +2.7 percent annual rate
Core PCE price index Consensus Forecast for preliminary Q4 08: +2.6 percent annual rate
Range: +2.5 to +2.7 percent annual rate
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Real GDP growth is always quoted at a quarterly annual rate. It measures how much the economy has grown over a three-month period. Quarterly growth rates are often volatile; consequently, economists also like to look at the year-over-year growth in GDP. The yearly changes tend to be more stable. |
![[Chart]](chart_1.gif)
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It is common to compare quarterly changes at annual rates in the GDP deflator. These can be volatile, just like the quarterly swings in real GDP growth; as a result, the trend in inflation is better determined by year- over- year changes. |
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