Wednesday, October 31, 2007

Behind the 2007Q3 Preliminary GDP Growth Estimate

The latest news from BEA can be found here. James Hamilton provides some details on this 3.9% annual growth rate bit of goods news and lowers his recession probability. A few more observations are in order.

Consumer demand growth was only 3 percent – which to a Rubinesque bear like myself is sort of good news if this eventually translates into more investment. Investment demand barely grew however as the growth in business investment barely offset the continuing fall in residual investment. Ah but the Federal Reserve did lower the Federal Funds rate by more than inflation dove Brad DeLong would have.

The two other GDP categories are government purchases and net exports. Government purchases grew by 3.7 percent at annualized rate almost entirely because of defense spending growth. One has to wonder why our neocon President had his temper tantrum yesterday morning. But the truly excellent news was the rise in exports. Let’s hope this continues – even if it means Lou Dobbs would have one less thing to complain about.


Bruce Webb said...

Apropos of nothing. The Social Security Trustees projected 2007 Real GDP at 2.6% with the Low Cost alternative being 3.4%. Per my trusty calculater this means any rate of real GDP in Q4 above 2.0% beats Intermediate Cost. And another quarter at 3.9% would split the difference and give us 3.1% for the year. My fingers are still crossed but it seems that the bias for SS solvency is to the upside. said...

I am curious. Why has nobody in the econoblogosphere that I can see commenting on the Fed rate cut?

Anonymous said...


Didn't nominal GDP decline and wasn't a substantial portion of 'real' growth purely an artifact of GDP accounting...

Here's an article by Rex Nutting from yesterday's MarketWatch:

Inflation was low because oil prices surged
In GDP math, sometimes one plus one equals zero

By Rex Nutting, MarketWatch
Last Update: 1:56 PM ET Oct 31, 2007

WASHINGTON (MarketWatch) -- As odd as it sounds, the government reported that inflation was at a four-decade low in the third quarter, primarily because import oil prices rose so much.


Bruce Webb said...

Barkley have you tried A pretty sharp guy who not only focuses on the Fed but is very responsive in comments.

ProGrowthLiberal said...

Juan - Greg Mankiw commented on Rex's piece. But no - the GDP deflator did increase a small bit. Real GDP rose by 0.96% (unannualizing this % increase) while nominal GDP rose by 1.17% so the deflator rose by 0.2%. BEA annualized this showing GDP deflator inflation running at 0.8%. Low but not negative.