•Press Release
April 30, 2008 (GDP Byte)
GDP Byte by Dean Baker
For Immediate Release: April 30, 2008
Contact: Alan Barber, (202) 293-5380 x115
"A rising savings rate will slow growth for the rest of the year."
GDP eked out a 0.6 percent gain for the second consecutive quarter as a jump in inventories and defense spending kept GDP in positive territory. Sales of final goods actually fell by 0.2 percent in the quarter, only the second decline since the last recession. The 0.6 average growth rate for the last two quarters is the lowest two-quarter rate since the 0.1 percent average growth rate for the 3rd and 4th quarters of 2001.
There are very few bright spots in this quarter’s data. Consumption grew at just a 1.0 percent annual rate, with consumption of durable goods declining by 6.1 percent and consumption of non-durables falling at a 1.3 percent annual rate. Consumption of services grew at a healthy 3.4 percent rate, but even this increase was largely driven by expenses over which people have little control. Increases in medical care, housing (largely imputed rent on owner occupied housing), and utilities accounted for almost two-thirds of the rise in service consumption, with most of the rest contributed by the “other” category. This category is dominated by personal business items like bank services and life insurance. In other words, consumers are cutting back in the areas where they have control over their spending. It is worth noting that the saving rate, at 0.2 percent, still remains very low. The slowdown in consumption thus far is the result of slower income growth, not increased saving.
Residential investment continues to be a drag on the economy, falling at a 26.7 percent annual rate and subtracting 1.23 percentage points from GDP for the quarter. Residential investment is now down by 34.3 percent from its peak in the 4th quarter of 2005. It is likely to fall further in the second quarter, but after that it is likely to level off for the rest of the year.
