Economic Research – US Economic Outlook

We apologize for the tardiness and brevity of this update. We have been on the peas-and-chicken circuit for the better part of two months, which has consumed much of our time and energy. A lot has transpired since our January update. Congress passed and the president signed a $787 billion fiscal stimulus program.

We apologize for the tardiness and brevity of this update. We have been on the peas-and-chicken circuit for the better part of two months, which has consumed much of our time and energy. A lot has transpired since our January update. Congress passed and the president signed a $787 billion fiscal stimulus program. Treasury Secretary Geithner, after paying his back taxes, changed the name of the financial institution rescue program from TARP to FSP (Financial Stability Program). The Obama administration announced a $75 billion program to facilitate the modification of at-risk home mortgages. And the Commerce Department released its first guesstimate of Q4:2008 GDP.

 

In this commentary, we want to concentrate on the fiscal stimulus program and FSP. But before doing so, let’s discuss the Q4 GDP data. Real GDP is estimated to have contracted at an annualized rate of 3.8% – the sharpest contraction since Q1:1982’s 6.4% contraction. As bad as the fourth quarter contraction was, had it not been for the estimated 1.3% contribution to real GDP from inventory accumulation, the headline would have been worse. The only major category of final demand that increased in the fourth quarter was federal government spending. Personal consumption, residential investment, nonresidential investment, business equipment and software, exports and state/local government expenditures all were down. Real final sales of domestic product contracted at an annualized rate of 5.1% – the worst showing since Q2:1980’s 7.5% contraction. December data for inventories and real net exports suggest a downward revision to the Commerce Department’s advance estimate of real GDP.

 

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