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 0.3 percent in the third quarter of 2008, (that is, from the second quarter to the third quarter), according to advance estimates released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.8 percent.
The decrease in real GDP in the third quarter 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 a subtraction in the calculation of GDP, decreased.
Let's take this one bit at a time.
1.) Anyone who thinks the economy grew by 2.8% in the second quarter is a fool. That growth rate was the result of a statistical anomaly, not actual growth.
2.) The report noted that "Most of the major components contributed to the downturn in real GDP growth in the third quarter." In other words, there wasn't much good news.
3.) Personal consumption expenditures dropped 3.1% for the 3Q. Ouch. Durable goods purchases dropped a whopping 14.1% and nondurable goods dropped 6.4%. The US consumer is clearly trimming his spending. This does not bode well for the holidays.
4.) Residential investment dropped 19.1%. While I say this a lot it bears repeating: we're nowhere near a bottom in housing.
5.) Non-residential construction dropped 1%. With the credit crunch in full swing I would expect this to be the beginning of a trend. In addition -- and as noted by the blog Calculated Risk -- commercial real estate is not doing well right now.
6.) Exports increased 5.9%. With the rest of the world slowing down I don't expect this trend to continue.
7.) Government spending increased 5.8%. When government spending increases by this much you know you're in trouble.
All in all, this report indicates the problems are mounting for the US economy.