The Commerce Department issued its initial and extremely preliminary estimate of third quarter Gross Domestic Product this morning. (GDP is the total output of goods and services produced within a country’s borders.) US GDP dropped at an annual rate of 0.3% during the third quarter. It increased 0.8% on a year-over-year basis. Essentially all of the year-over-year growth can be attributed to the one-off stimulus of tax rebates distributed and (mostly) spent in the summer.
The components of 3rd quarter GDP provide little encouragement for a quick turnaround; in fact, they clearly point to harder times ahead. Personal consumption dropped 3.1%. This is the first outright decline in consumer spending since the fourth quarter of 1991. That’s positively un-American, as some Republican office-seekers might say. The 14.1% drop in durable goods—that is, items meant to last at least three years—was the biggest since the first quarter of 1987. But that’s nothing. The 6.4% decline in non-durable goods consumption was the sharpest since the fourth quarter of 1950. Investment in residential structures continued its steep double-digit downward trajectory. The $350 billion (annualized) spent last quarter compares to a peak of $602 billion (annualized) in the fourth quarter of 2005. Investment in business equipment and software accelerated its decline with a 5.5% drop following a 5.0% drop in the 2nd quarter.
Nor did the glow from the few bright spots provide much comfort. Spending on non-residential structures has been robust, and it continued to grow though at a slackening pace. The 7.9% rise was the smallest in almost two years. Exports increased as well, but the strengthening dollar—not to mention global recession—is already creating a slow down. State and local government spending rose 1.4%, though here again it’s hard to imagine that falling tax revenues won’t force spending cuts soon. Finally, the biggest jump was spending on national defense, up 18.1%. Let’s hope this is one positive economic trend that will not continue.