GDP Down 3.8% for Fourth Quarter

That is a big drop in GDP. The biggest in 27 years according to this article. BEA’s detailed news release can be found here. Here are some of the top portions of the release,

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 3.8 percent in the fourth quarter of 2008, (that is, from the third quarter to the fourth quarter), according to advance estimates released by the Bureau of Economic Analysis. In the third quarter, real GDP decreased 0.5 percent.

The Bureau emphasized that the fourth-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 4). The fourth-quarter “preliminary” estimates, based on more comprehensive data, will be released on February 27,

The decrease in real GDP in the fourth quarter primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment that were partly offset by positive contributions from private inventory investment and federal government spending. Imports, which are a subtraction in the calculation of GDP, decreased.

Most of the major components contributed to the much larger decrease in real GDP in the fourth quarter than in the third. The largest contributors were a downturn in exports and a much larger decrease in equipment and software. The most notable offset was a much larger decrease in imports.

Final sales of computers subtracted less than 0.01 percentage point from the change in real GDP after subtracting 0.01 percentage point from the third-quarter change. Motor vehicle output subtracted 2.04 percentage points from the fourth-quarter change in real GDP after contributing 0.16 percentage point to the third-quarter change.

Update: One thing about recessions, and just in general, is that people often times tend to focus on the most recent data and ignore past data. This often leads people to arriving at conclusions where consideration of a larger “set” of information would probably preclude. In this case, it may be tempting to look at that -3.8% decline in GDP and think the world is ending. That soon things will be really bad. Some historical data to take into consideration:

  • 1980 Second Quarter: GDP declined 7.8%
  • 1981 Fourth Quarter: GDP declined 4.9%
  • 1982 First Quarter: GDP declined 6.4%.

Now this doesn’t mean we shouldn’t be concerned or that things are going to be all milk and honey. This is shaping up to be a bad recession. We are already past the average lenght of a recession in the post WWII era. Just keep in mind that a decline like this, while not good, isn’t as bad as we’ve seen in the last 60 years or so.

FILED UNDER: Economics and Business, ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.


  1. Dantheman says:

    I would add that the drop was smaller than the change in consumption, as inventory increases were over 1.3% of GDP (which is not unusual for the start of a recession). Without the buildup of inventories, GDP would have dropped over 5%.

    On the other hand, I agree this isn’t as bad of a recession as the double dip one in 1980-1982 yet. The operative word being “yet”.

  2. It’s not the disease I fear but the cure.

  3. Triumph says:

    That is a big drop in GDP.

    Thanks a lot, B. Hussein.

  4. Drew says:

    I guess it is unavoidable that we are products of our experience, as much as we try not to personalize things.

    Hence, yours truly, an entrant into the job market – in the steel industry – in 1981 just can’t go apoplectic right now. I was in the cauldron. Is this a serious downturn? Yes.

    Is it all that politicians (who of course have an agenda) make it out to be? I just don’t see the evidence.

  5. odograph says:

    “It’s not the disease I fear but the cure.”

    Too bad you didn’t fear the disease, back when it was stewing.

  6. Steve Verdon says:

    Yes, because Charles Austin that mild mannered entrepenuer transforms at night into John Galt! He can right market wrongs, stop externalities, and correct people’s irrational behavior with just a quick explanation that A = A!

    Jesus Odograph, if your going to try satire take a few lessons from Triumph.

  7. Dave Schuler says:

    Note, too, that GDP was down less than 2% when the entire year was taken into account.

    As I pointed out in my recent post on financialization, the financial sector currently makes up about 8% of GDP. That’s a historic high. If the financial sector returns to anything that even vaguely resembles historic norms, it will need to shave between 12% and 35%. That’s between 1% and 3% of GDP right there.

    There’s the policy question for you: how in the heck do you prop up something that’s completely out of whack?

  8. Dave Schuler says:

    Jesus Odograph, if your going to try satire take a few lessons from Triumph.

    Please, anything but that. One of them is bad enough.

  9. anjin-san says:

    There are other factors to consider. I don’t recall the financial sector being under this kind of stress in ’81.

    (of course I was engaging in certain mind altering activities at the time)

  10. Thomas Jackson says:

    Our economy is in bad shape due to the meddling of the government and poor judgment of Wall Street. Compound this with scary politicians now braying in Washington and we find:

    -freight shipments down 35% in the past quarter
    -Architectural fees down 30% in the past quarter

    Now why are we in a pickle. I have been investing over 40 years and I have never, ever been in a situation I couldn’t see the end of a problem. Why?

    Because the government has changed the rules.

    Just what are the rules? No one knows. More taxes, inflation, wasteful spending are certain. Stagflation that Nixon-Carter created in the 70s is sure to return.

    Worse our national debt is up from 30% of the GDP in 1980 to 76% today.

    After president 666 gets his spending increase it will equal 100% of the GDP.

    Argentina went belly up when they hit 80%. Yes America isn’t Argentina but we are headed down the same road.

    Does anyone out there think the DOW will be at 9,000 in 2012? Does anyone believe we won’t see inflation return?

    And how bad can inflation be. In 1968 a package of twinkies cost 10 cents today its $1.35. A loaf of bread that cost 35 cents costs 2.20.

    Can you remember how recently gas cost less than a dollar a gallon? Or when you could buy a new car for 2,000? I did love Mustangs.

    I can sit out a really, really bad four years, can you.

    By the way I am a vulture investor and want to thank everyone who voted for President 666. I will benefit greatly from his term.

  11. odograph says:

    I almost said something like “geez Charles, give Obama 2 weeks as President before you forget Bush, his economic crash, and socialization of the financial sector.”

    Have fun getting your blinkers installed, boys.

  12. odograph, the Democrats have been driving the economy in the ground, with an assist from Bush, since the last election — in 2006. And, yes, Republicans have been just about as bad as Democrats in creating the mess we find ourselves in now, but somehow I don’t think the answer to too much debt and uncontrolled spending is even more debt and even looser spending. Call me weird if you like, but if you find that too hard to wrap your mind around, then maybe A=A is a good place to start over.

    The world didn’t go to hell in a handbasket on January 20, 2009. I’ve never said that, and I doubt Steve or anyone else here has either. To paraphrase Steve, Jesus odograph, do you have to have gainsay absolutely everything I write? No one, not even Paul Krugman, is wrong all the time.

  13. One more thing, the new regime has been in place now for ten days now and drunken sailors are already considering a class action suit for defamation for the way the Congress and the administration are acting when it comes to spending with wild abandon and no thought of ever having to pay it back.

  14. sam says:

    President 666: Ah, I see my plan is proceeding apace. Thomas Jackson, one of our main targets, has his panties in a bunch.

    Major Demon Assistant: Good work, sir. I had my doubts that we could unman him so soon into your administration.

    Major Demon Assistant: Perhaps we can begin the plague of boils on his backside.

    President 666: No, those will come later. For the moment, let’s just get the price of package of Twinkies up to $2.00–the price of Twinkies seems to be one of his benchmarks for disaster.

    Major Demon Assistant: Right, $2.00. I’ll get on it immediately.

    Minor Demon Assistant: One question, though, sir.

    President 666: Yes.

    Minor Demon Assistant: He describes himself as a “vulture investor”. Don’t we have a circle in the spa dedicated to those guys? I mean, I thought they were your’s from the getgo.

    President 666: Well, they are of my party, although they don’t know it. But I wouldn’t be me if I didn’t stick it to my most fervent, if unknowing, disciples, now would I?

  15. odograph says:

    odograph, the Democrats have been driving the economy in the ground, with an assist from Bush, since the last election — in 2006.

    Priceless. Who did they say was going to try for satire? I think maybe you win.

  16. DL says:

    There is another difficlut to measure factor in this “recession” that wasn’t in the others. The media is and has been for years, complicit in its agenda of making the economy fail under a republican president. Even their failure to expose Bill Clintion mega-lie about the worse economy in fifty years cannot begin to match the manner in which they use false images to frighten America into economic submission. Economies are driven as much by fear and greed as they are by economic facts. They know that, and as they have with the science of global warming, politicized the economy.

  17. sam says:

    The media is and has been for years, complicit in its agenda of making the economy fail under a republican president.

    Jesus, man, get a grip, willya? You guys keep trotting out this nonsense long after its shelflife has expired. Get another bitchpole, Ok? No wonder you’re losers: No imagination.

  18. Bill H says:

    The GDP was down at a 3.8% annual rate in the fourth quarter, not “down 3.8%” as your alarmist headline reports. Things are bad enough without exaggerating them.

  19. Barry says:

    “Some historical data to take into consideration:

    1980 Second Quarter: GDP declined 7.8%
    1981 Fourth Quarter: GDP declined 4.9%
    1982 First Quarter: GDP declined 6.4%. ”

    I assume that those are annual rates, and not actual declines for the quarters.

    I’d add that in that time we were getting a massive oil shock, combined with a deliberate and successful attempt by Paul Volcker to strangle inflation out of the economy. IIRC, the real prime rate was ~8%, which was insanely high. In this case, the Fed is trying to stimulate the ecoomy.