Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Why Investors Care
| Released on 4/30/08 For Q1 Advance 2008 | |||||||||||||||||||||||||
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Highlights
The initial estimate for first quarter GDP is keeping the economy out of the technical definition of recession - but just barely - and gives the Fed a little flexibility over whether to cut the fed funds target rate this afternoon or not. While the markets are primarily betting on another small rate interest rate cut, continued high inflation certainly should give the Fed additional reason to pause. Real GDP came in at an annualized 0.6 percent, compared to the consensus expectation of a 0.3 percent gain and to the fourth quarter's 0.6 percent annualized increase. The first quarter GDP price index firmed to an annualized 2.6 percent boost from the prior quarter's 2.4 percent.
The modest rise in real GDP reflected continued strong exports, a small rise in inventories, and continued healthy services personal consumption. Weakness was seen in declines in durables and nondurables PCEs, nonresidential fixed investment, and in residential investment.
While the broad GDP price number was not a high as expected it was still on the firm side and the headline PCE price index was still rather hot, rising an annualized 3.5 percent in the first quarter after a 3.9 percent jump the quarter before. The core PCE price index growth rate eased to up 2.2 percent in the first quarter, compared to up 2.5 percent in the prior quarter.
Year-on-year, real GDP growth held steady at up 2.5 percent in the first quarter. Year-on-year, the GDP price index eased to up 2.2 percent in the first quarter from up 2.6 percent in the prior quarter.
The good news in today's report is that growth was stronger than expected and that inflation was not as bad as feared - but still high. Looking forward, the rise in inventories was modest and is not likely going to be much of a factor in damping growth. The numbers do give the Fed flexibility to lower rates by 25 basis points this afternoon but also gives the Fed room to pause.
GDP in the fourth quarter appears to have kept the U.S. economy out of the technical definition of recession with an annualized 0.6 percent increase and now we get to see if the same holds true for the first quarter. There is a lot of uncertainty over whether the first quarter will stay out of negative territory or not but most economists are expecting a near flat number whether it has a plus sign or a minus sign. For the first quarter, the composition of GDP will be important. Inventory accumulation should not be too high, exports should continue to rise, and consumer spending should not soften too much if the economy is to rebound in the second half. On the inflation front, the fourth quarter GDP price index was relatively strong at an annualized 2.4 percent. The first quarter number is likely to be similar or higher as the quarterly CPI growth rate remained strong and import prices surged during the quarter.
Real GDP Consensus Forecast for advance Q1 08: +0.3 percent annual rate
Range: -0.2 to +1.5 percent annual rate
GDP price index Consensus Forecast for advance Q1 08: +3.0 percent annual rate
Range: +2.3 to +4.2 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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