GDP Increases Slightly; We're Not in a Recession Yet

The advance GDP numbers are in for the first quarter of 2008, and it shows, somewhat surprisingly, that the economy is still growing, albeit at an anemic 0.6%:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.6 percent in the first quarter of 2008, according to advance estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP also increased 0.6 percent.

The Bureau emphasized that the first-quarter "advance" estimates are based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3).  The first-quarter "preliminary" estimates, based on more comprehensive data, will be released on May 29, 2008.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE) for services, private inventory investment, exports of goods and services, and federal government spending that were partly offset by negative contributions from residential fixed investment and PCE for durable goods.  Imports, which are a subtraction in the calculation of GDP, increased.

The increase in real GDP is the same as in the fourth quarter, reflecting an upturn in inventory investment that was offset by an upturn in imports, and downturns in nonresidential structures, in PCE for durable goods, and in PCE for nondurable goods.

Final sales of computers contributed 0.12 percentage point to the first-quarter growth in real GDP after contributing 0.16 percentage point to the fourth-quarter growth.  Motor vehicle output subtracted 0.30 percentage point from the first-quarter growth in real GDP after subtracting 0.86 percentage point from the fourth-quarter growth.

I'm a little surprised, based upon the 'sub-prime' crisis, housing slowdown, and the huge rise in oil and gas prices that all kicked in hard during this period. (Remember, we're talking about "fiscal" 2008 which still begins in the second half of calendar year 2007.) As such, it also makes me wonder just how big an economic contraction we are going to have.

This does a few things - it cements in a further rate cut by the Feds at their next meeting, and it makes the possibility of anything other than a slight constriction of economic growth (a small recession) almost nill. Having said that, I'm still expecting a contraction of about a percentage point in both the second and third quarters of fiscal year 2008 - which would qualify as a recession. I hope I'm wrong, but I don't think so.