With many economists now positing that the U.S. economy fell into recession in the fourth quarter of 2007, the first government evidence that the economy is indeed in recession was released Thursday morning by the Commerce Department. It reported that real gross domestic product decreased at an annual rate of 0.3% in the third quarter of 2008 from the second quarter, according to advance estimates by the Bureau of Economic Analysis.
A recession is traditionally defined as two consecutive quarters of negative growth in real GDP. This report, if the numbers are confirmed by more comprehensive data in late November, would constitute the first. GDP for the second quarter increased 2.8%.
According to the BEA, the decrease "primarily reflected negative contributions from personal consumption expenditures (PCE), residential fixed investment, and equipment and software that were largely offset by positive contributions from federal government spending, exports, private inventory investment, nonresidential structures, and state and local government spending." Imports, which are subtractived from GDP, decreased.
The largest contributors were a sharp downturn in PCE for nondurable goods, a smaller decrease in imports, a larger decrease in PCE for durable goods, and a deceleration in exports. Notable offsets were an upturn in inventory investment and an acceleration in federal government spending.
Meantime, prices soared and disposable income contracted. Consumer prices increased 4.8% in the third quarter, on top of an increase of 4.2% in the second. Disposable personal income decreased 3.7% to $102.4 billion in the third quarter, in contrast to an increase of $409.3 billion (16.7%) in the second, which was attributed in part to the effects of the federal stimulus package. Real disposable personal income decreased 8.7%, in contrast to an increase of 11.9% in the second quarter.
Real PCE decreased 3.1% in the third quarter. Durable goods decreased 14.1%, and nondurable goods decreased 6.4%. Services expenditures increased 0.6 percent, compared with an increase of 0.7 percent.
Real nonresidential fixed investment decreased 1.0%; nonresidential structures increased 7.9%; equipment and software decreased 5.5%, and real residential fixed investment, housing, decreased 19.1%, compounding a decrease of 13.3% in the second quarter.