Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Why Investors Care
| Released on 10/31/07 For Q3 Advance 2007 | |||||||||||||||||||||||||
| |||||||||||||||||||||||||
Highlights
Third quarter real GDP showed no slowing down despite subprime problems with an annualized 3.9 percent increase, following a 3.8 percent boost in the second quarter. The third quarter growth rate was above the market forecast for a 3.2 percent gain in GDP. Strength in the third quarter growth was personal consumption, nonresidential structures investment, inventories, and exports. As expected, housing remained a sizeable negative. On the inflation front, the GDP price index slowed sharply to a 0.8 percent annualized rate, following a 2.6 percent increase in the second quarter. Oil prices were favorable in the third quarter on average. The third quarter price index was below the consensus forecast for a 2.0 percent annualized increase. The core PCE price index firmed to an annualized 1.8 percent in the third quarter, after a 1.4 percent rise in the second quarter.
Year-on-year, real GDP growth jumped to 2.6 percent in the third quarter, compared to up 1.9 percent in the second quarter. Year-on-year, the GDP price index eased to 2.3 percent in the third quarter, down from up 2.7 percent in the previous quarter. The core PCE price index growth rate came in at up 1.9 percent in the third quarter, down marginally from up 2.0 percent in the second quarter.
Today's report gives the Fed quite a bit to digest today as it determines whether or not to cut interest rates at the end of the FOMC meeting this afternoon. The economy is stronger than most expected and higher oil prices have not yet kicked in. Today's GDP report resurrects the possibility - though most market participants think it is a small possibility - that the Fed may not ease later today.
GDP came in at an annualized 3.8 percent for the second quarter - a fairly robust number. Strength was generally widespread outside of residential investment. But the subprime mess and worse-than-expected housing have been damping the consumer sector along with manufacturing. On the positive side, business investment and exports are likely to keep growth moderately positive for the quarter. But with subprime lending problems now creeping into the overall economy somewhat, third quarter GDP numbers are not as relevant as they would be otherwise. On the inflation front, the GDP price index rose 2.6 percent annualized in the second quarter, following a 4.2 percent jump in the first quarter.
Real GDP Consensus Forecast for advance Q3 07: +3.2 percent annual rate
Range: +2.5 to +4.0 percent annual rate
GDP price index Consensus Forecast for advance Q3 07: +2.0 percent annual rate
Range: +0.8 to +2.3 percent annual rate
![[Chart]](chart.gif)
|
Real GDP growth is always quoted at a quarterly annual rate. It measures how much the economy has grown over a three-month period. Quarterly growth rates are often volatile; consequently, economists also like to look at the year-over-year growth in GDP. The yearly changes tend to be more stable. |
![[Chart]](chart_1.gif)
|
It is common to compare quarterly changes at annual rates in the GDP deflator. These can be volatile, just like the quarterly swings in real GDP growth; as a result, the trend in inflation is better determined by year- over- year changes. |
| 2007 Release Schedule | ||||||||||||||||||||||||||
|
powered by
![[Econoday]](../../../../../../../../../images/logo.gif){kind=logo}