Breaking down the Q4 6% GDP contraction (It's really 10.2%)

GDP is comprised of three main components: Personal spending, Business investments, and Government spending. Total GDP is offset by Imports. Note that a 10% annualized contraction in GDP is a depression.

The Big Three components

Investments contracted annualized 22%
2008 Q4 Investments dropped to 1.9 Trillion from 2.01 Trillion (2,010.9 to 1,906.1 Billion), a decline of 104.8 Billion dollars in one quarter or 5.5%. This is an annualized contraction of 22%.

Personal consumption contracted annualized 9.5%
2008 Q4 Personal consumption dropped to 9.92 Trillion from 10.16 Trillion (10,163.5 to 9,927.9 Billion), a decline of 235.6 Billion dollars in one quarter or 2.37%. This is an annualized contraction of 9.5%.

Government spending contracted annualized 4.8%
2008 Q4 Gov spending dropped to 2.91 Trillion from 2.94 Trillion (2,946.1 to 2,911.4 Billion), a decline of 34.7 Billion dollars in one quarter or 1.19%. This is an annualized contraction of 4.8%.

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GDP excluding Net Exports contracted annualized 10.2%
2008 Q4 GDP excluding Net Exports dropped to 14.7 Trillion from 15.1 Trillion (15,120.5 to 14,745.4 Billion), a decline of 375.1 Billion dollars in one quarter or 2.54%. This is an annualized contraction of 10.2%.

So how does the 10.2% get skewed to 6%? It's because we're buying fewer imports which makes us look more productive. Unfortunately we're exporting less also, so in my humble opinion, we're in a depression.

Net Exports

Net exports - Net commerce drops 65.2%
This one is tricky and requires some breakdown. Imports outweigh Exports, so the number is negative. However 2008 Q4 Commerce (Imports + Exports) dropped to 4 Trillion from 4.6 Trillion (4,645.5 to 3,99.4 Billion), a decline of 651.1 Billion dollars in one quarter or 16.3%. This is an annualized contraction of 65.2%.

Exports contracted annualized 56.6%
2008 Q4 Exports dropped to 1.7 Trillion from 1.9 Trillion (1,968.9 to 1,724.7 Billion), a decline of 244.2 Billion dollars in one quarter or 14.2%. This is an annualized contraction of 56.6%.

Imports contracted annualized 71.7%
2008 Q4 Imports dropped to 2.2 Trillion from 2.6 Trillion (2,676.6 to 2,269.7 Billion), a decline of 406.9 Billion dollars in one quarter or 17.9%. This is an annualized contraction of 71.7%.

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Ref: www.bea.gov...

p.s. - Others will calculate slightly different values if we include true impact of net commerce.



[edit on 25-4-2009 by Dbriefed]

This is a decent breakdown and actually confirms my numbers which stand at 11%

What no one seems to calculate is the micro rate of decline, these numbers, of course, are the macro rate of decline. The micro stands at roughly -39.5%. That's the "Real" economy no one ever pays attention to. I'm not done crunching numbers at the micro level, but it is really bad.

Edit to add:

the "-" in "-39.5%"

[edit on 25-4-2009 by projectvxn]

You are assuming that the GDP continues to decline in a similar fashion for the rest of year.

The correct way to say it is that we are on pace for a GDP contraction of 10.2%. The 10.2% drop has not actually happened yet.

In the first quarter the stock markets fell 8%. Using by your rational you would say they dropped 32%. Which would be blatantaly false.

Only time will tell if these annualized number have any sense of truth to them.

Hi projectvxm, I'm interested to see your numbers. I calculated in commerce, and it's much bleaker than I would expect - I must be doing something wrong here or I'm breaking the rules of calculating GDP.

For Q308: Personal (P) + Investment (I) + Government (G) = 15,120.5 B
For Q408: Personal (P) + Investment (I) + Government (G) = 14,754.4 B
= contraction of 375.1 Billion or -2.54% (-10.2% annual)

So, for commerce I have:
Exports: From 1968.9 B to 1724.7 B, a contraction of 244.2 B or -14.16%, a -56.6% annual rate.
Imports: From 2676.6 B to 2269.7 B, a contraction of 406.9 B or -17.93% a -71.7% annual rate.
For Q308: Exports + Imports = 4,645.5 B
For Q408: Exports + Imports = 3,994.4 B
= contraction of 651.1 B or -16.3% (annual 65.2%)

So here's the bleak numbers, if I add P + I + G and total commerce, the economic contraction looks far, far worse than the GDP numbers say.

GDP: Q308 - 14,412.8 B, Q408 - 14,200.3 B - This includes Net Exports as a summed up negative number (-707.7 and -545.1 B), not as a total measure of commerce.

If we look at the exports plus imports as a measure of commerce rather than imports offsetting exports, the contraction numbers look like this (C = Commerce):

Q308: P + I + G + C = 19766.0 B
Q308: P + I + G + C = 18739.8 B
= contraction of 1,026.2 or -5.48% (annual -21.9%)

Maybe an economics professor will chime in here.

______________________

Hi disgustedbyhumanity, an annualized rate is an official measure. This is more conservative than to forecast the trend which is accelerating downward.

glossary.reuters.com...
ANNUALIZED RATE

An annualized rate plots the change in an indicator over the whole year if the latest monthly or quarterly figure is presumed to persist for the rest of the year. It is calculated by multiplying one month's change by 12 to produce the annualized rate, or one quarter's rate by four.


[edit on 25-4-2009 by Dbriefed]

reply to post by Dbriefed


Just because you annualize a rate doesn't mean that the rate is going to happen. Your OP said the actual drop in GDP was 10.4% which it was not. You cannot measure anything until it happens. So far only the 2.54% drop has occurred. Thats the point. I agree 2.54% in a quarter equals 10.4% annualized, it's just that the annuallized number doesn't mean anything at this point.

reply to post by disgustedbyhumanity


well what was the drop using this quarter , and the previous 3 ?

If you can , or have those numbers .

The problem is that you have to redefine what GDP really is and what it isn't. The government numbers are a fallacy and quite a distraction from the truth. No where is that more apparent than unemployment numbers. These situations are the reason they invented complicated mathematics, and for some reason it is good for everyone but the government and the Federal Reserve.

We have to take in the facts:

The US government is in debt and so is the entire population. With the government debt standing at $10,730,177,000,000,000(Measures in trillions as of 7:30 pm Pacific) a break down of roughly $35,000 per US citizen. But that doesn't tell the whole story. The government spending bills as of late have taken us close to $14 trillion in debt with personal debt reaching 5 times that amount on average when you include cost of living as averaged by region, fuel and other energy costs that have continued to rise, and the debt in corporate America is even higher. Which is fueling the inflation in energy and food. It is debt. We have to change the way we calculate our wealth. The longer we keep this game up the longer we're going to run around like chickens with our heads cut off.

You get negative numbers. It's why it never makes any sense when you run their numbers. They're a bunch of damned liars. Our real GDP is MINUS 35% The GDP they shove in our faces is a farce.

[edit on 25-4-2009 by projectvxn]

Q1 GDP numbers were released today, I've graphed out the rate of change for the GDP components. So as Net Exports does not confuse the actual commerce numbers, Exports and Imports are separated out.

This is a 3 year graph - Q106 to Q109
[atsimg]http://files.abovetopsecret.com/images/member/3814ea895452.jpg[/atsimg]

This is slightly over 10 years graph - Q298 to Q109
[atsimg]http://files.abovetopsecret.com/images/member/a3ee4c6cc889.jpg[/atsimg]

[edit on 29-4-2009 by Dbriefed]

Jesus that is one precipitous drop. We're adding debt like crazy and our production levels are in negative territory....I'd like to know where Obama and the Federal Reserve get off announcing recovery...I expect consumer spending to go up but only for essentials here soon, that, a recovery does not make.

No, in fact all the money being held in banks as savings by the people will eventually leak out. And with the Fed thinking they can"Replace" money that was already there in the first place you can bet that inflation will take over, and the dollar dumping will start world wide when it becomes apparent that the Federal Reserve doesn't have a damned clue what they're doing..And if they do, they belong in jail for it.

Edit to add:

This is really one hell of an informative thread. Kudos to you Dbriefed.

[edit on 30-4-2009 by projectvxn]

So...seasonally adjusted Investment is down over 50%....hmm.

After I created the graphs on rate of change I found the BEA site does that also, but seasonally adjusted.

Here's a 10 year:
Bureau of Economic Analysis (BEA) 10 year

Here's from 1930-2009
Bureau of Economic Analysis (BEA) 1930-2009

Edit: Looks like the graphs don't save. You have to select the appropriate rows, and hit the graph button on the bottom of the page.


[edit on 30-4-2009 by Dbriefed]