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Summary:
For the first time in the current economic expansion, recent revisions to the data show that the U.S. experienced a quarter in which real GDP growth was negative (the fourth quarter of 2007). Positive GDP growth returned during the first two quarters of 2008. As of the second quarter of 2008, real GDP was about 20% larger than it was at its previous high near the end of the 1991-2001 expansion. During the first two quarters of 2008, real GDP grew at an annual rate of 0.9% and 2.8%, respectively. Annualized quarterly rates of growth over the four quarters of 2007 were 0.1%, 4.8%, 4.8%, and - 0.2%. While the present expansion has been characterized by a modest growth in payroll employment compared with past expansions, a rising unemployment rate and job losses have characterized the first seven months of 2008. The unemployment rate rose to 6.1% in August (where it remained in September) from an expansion low of 4.4% (October 2006) and payroll employment has declined by more than 700,000 since December 2007. Inflation is also on the rise. The headline inflation rate, measured by the CPI, rose 4.9% for the 12 months ending in September 2008. This is higher than the core inflation rate (which excludes food and energy) of 2.5%. For the three months ending in September 2008, the headline CPI rose at an annual rate of 2.6%. Excluding food and energy, it rose at an annualized rate of 2.7%. The consensus among economists is that GDP will grow will average between 1.3% and 1.7% in 2008 and -0.2% and 1.3% in 2009. The unemployment rate is expected to rise and average between 5.6% and 5.7%. The inflation rate is expected to be higher than the rate that prevailed in 2007. And, although the international trade deficit is still large, it has declined and the decline is expected to continue. To forestall an economic downturn and to ease the stress in national financial markets, the Federal Reserve has eased monetary policy over the past eight months. Between September 18, 2007, and October 8, 2008, the target for the federal funds rate was incrementally reduced to 1.5% from 5.25%. The foreign trade deficit has continued to fall as a percentage of GDP. During the first half of 2008, it was the major contributor to GDP growth. This report will be updated monthly.
