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GDP remains 0.6% in third unrevised estimate – Is US in recession confirmed ?

GDP – Gross domestic product rose at an unrevised for third time 0.6% annual rate October’2007 through December’2007, the Commerce Department reported for fourth-quarter GDP, much slower than the third-quarter’s 4.9% gallop.

Source: Bureau of Economic Analysis – National Economic Accounts (Bea.gov)

Year(Quarter) 2006
I
2006
II
2006
III
2006
IV
2007
I
2007
II
2007
III
2007
IV
Gross domestic product 4.8 2.4 1.1 2.1 0.6 3.8 4.9 0.6

Recession is defined as six months of continuous declines in GDP and we haven’t observed that yet as evident from the data. It is highly unlikely that we are in recession. As many macroeconomic factors affect GDP, it is difficult to determine the precise impact of any one of them. The prices of essential commodities are sky rocketing. Majority of people are worried about price rises. Groceries and gas are up, and retail businesses are suffering because of lack of consumer spending in non-essential retail markets. Oil is at all time highs, while the Dow, Nasdaq and S& P all slide lower in the month of January and February.

WSJ reports – Residential fixed investment, the GDP component that includes spending on housing, plunged by 25.2% in the fourth quarter, a bigger drop than the earlier estimated 23.9%. Third-quarter spending fell by 20.5%. The fourth-quarter plunge in housing took a bite of 1.25 percentage points out of GDP. The 25.2% plunge was the worst since a 35.1% fall in fourth-quarter 1981. This is one important reduction of GDP in fourth quarter of 2007.

Fourth-quarter spending by consumers increased 1.9%, below the previously estimated 2.0% climb. Third-quarter spending increased 2.8%. Consumer spending accounts for the lion’s share of economic activity — about 70%. It made a relatively less contribution of 1.32 percentage points to GDP in the fourth quarter.
Federal government spending increased 0.9%. Third-quarter spending rose 7.1%. State and local government outlays increased 3.0%.

GDP Forecast: Fed may not raise interest rates for at least a year, based on current projections for a turnaround in housing and credit markets. Real consumer spending may decline in the first two quarters of this year. The permanent solution is nowhere to be found in either the residential or commercial real estate markets. GDP will continue to be at same levels or further increase in future quarters of 2008 because of economic stimulus package, Fed lowering interest rates and Fed pumping $200 billion dollars to correct credit markets.


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Posted By: Kalyan | Date: March 27, 2008 | Categories: OtherNews
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