First Q’08 Preliminary GDP Reading

The Commerce Dept. released today its preliminary estimates for Q1 GDP.

Real gross domestic product, which is the broadest measure of the nation’s economic activity, increased at an annual rate of 0.9 percent in the first quarter of fiscal ’08, adjusted for inflation, showing an uptick from the original 0.6% gain originally reported or $8.8 billion, higher than the advance estimate issued last month.

In the fourth quarter, real GDP increased 0.6 percent and is up 2.5% versus a year ago.

The first quarter’s increase primarily reflected positive contributions from personal consumption expenditures for services, net exports, that added 0.8 points to real GDP growth versus the 0.2 original advance estimates issued last month and business construction which came in flat.

Real exports of goods and services saw an increase of 2.8 percent in the first quarter, compared with an increase of 6.5 percent in the fourth while real imports of goods and services decreased 2.6 percent, compared with a decrease of 1.4 percent adding nine-tenths of a percentage point.

The price index for gross domestic purchases otherwise known as the ‘price deflator’ which measures prices overall, rose at a 3.5% annual rate, which was unchanged from the advance estimate. This index increased 3.7 percent in the fourth quarter suggesting inflation is still a concern and remains above the perceived comfort zone of central bankers.

The largest negative component on real GDP continues to persist on the home building front, which subtracted 1.2 points from the growth rate. Excluding housing, real GDP grew at a 2.0% rate in Q1 and is up 3.6% versus last year.

With today’s 50% upward revision to the Q1 GDP data, and our expectation of real GDP growth at a 1.5% rate in Q2 and at a 4% rate in the second half of 2008 – the likelihood of a recession is fading I’d say rather fast. Let’s keep in mind a recession is defined as two quarters of negative GDP growth.

I’m sure attempts in redefining the term, recession – in order to fit the story media is trying to tell, are in the works. However, doing that at this point would appear to be intellectually disingenuous.