Economists React: GDP Report Shape of Things to Come?

From the WSJ.
Economists and others weigh in on the 0.3% contraction in third-quarter GDP.

According to the BEA’s advance estimate, real GDP contracted at an annualized rate of 0.3% during the third quarter. Note that the advance estimate is subject to two rounds of revisions, which will almost surely yield a larger contraction in real GDP when all is said and done. Moreover, the third quarter offers a hint of what lies ahead for the U.S. economy, and we expect a significantly larger contraction in real GDP during the current quarter. –Richard F. Moody, Mission Residential


Consumption was grim, down 3.1%, while corporate capital spending dropped 5.5%. Housing investment plunged 19.1% but commercial structures continued to rise, up a hefty 7.9%. Still, the sector is slowing; expect an outright drop in the fourth quarter. This is the first of a run of negative GDP numbers; the economy is in recession. We tentatively expect GDP of -1% in the fourth quarter and first quarter of 2009. –Ian Shepherdson, High Frequency Economics
A shift should transpire. Consumers are getting relief at the pump and retailers and foreign exporters are ready to offer discounts. Net exports and business equipment will be drags. –Stephen Gallagher, Societe Generale
Despite a stronger dollar, net exports provided a substantial boost to GDP growth, adding 1.1% to the total number. Goods exports, much of which was likely the result of orders placed in a period of a weaker dollar, grew by 7.5%, while goods imports shrunk by 2.8% on energy costs which, judging by the average quarterly price of oil, decline by around 4.5%. There’s no reason to expect that export growth will provide any benefit in the fourth quarter, though the continued decline in oil, if it manages to sustain, should reduce imports rather sharply. –Guy LeBas, Janney Montgomery Scott
Output in the nonfarm business sector fell at a 1.7% annual rate (more steeply than GDP, which includes government expenditures), and we estimate that hours worked declined at a 2% annual rate, implying a sluggish 0.3% advance in productivity. –Alan Levenson, T. Rowe Price
The data imply that just about all sectors of the economy are in the process of a serious contraction with the capitulation of the consumer the primary catalyst behind what is clearly the first consumer driven recession in three decades. And what was behind that? A -8.7% decline in real disposable personal income in the third quarter in contrast with the 11.9% increase observed in the second quarter of 2008. The advance estimate of gross domestic product sets the stage for an operatic end to the recent business cycle in what looks to be a significant contraction in the fourth quarter in excess of 4.0% –Joseph Brusuelas, Merk Investments
The details of this report were worse than the headline growth figure might suggest, and the outlook for the fourth quarter and beyond is grim, dominated by a tapped-out consumer, ongoing weakness in housing, and an incipient downturn in capital spending that promises to gain momentum. Partly blunting the decline will be continued narrowing of the net export deficit and surging federal government spending. However, states and localities are busy slashing spending to try to balance budgets that are hemorrhaging red ink, so this will partly offset the federal government’s upward impetus. All in all, we look for a recession that is both longer and deeper than those in recent memory, lasting at least through 2009 and encompassing a string of negative GDP growth figures. –Joshua Shapiro, MFR Inc.
In other times, the inflation side of the report would have been troubling with core PCE prices up 2.5% year-over-year and chain GDP prices up 2.7% on the same basis — but the Fed has no inflation worries because of falling commodity prices and rising slack in labor and product markets (we are not sanguine about the long-term inflation consequences of the explosion in the Fed’s balance sheet, but now is not the time to worry about that). –RDQ Economics
Government statisticians cited a couple of special factors that influenced the economy during the quarter — hurricanes and the Boeing strike. However, based on underlying sales and shipments figures, we suspect that the impact associated with each of these factors was relatively minor. –David Greenlaw, Morgan Stanley
Compiled by Phil Izzo