We had pointed out earlier that, despite all the downdrafts in the economy and a recession that started at the end of 2007, real plant and equipment spending was still on its normal growth path as of the third quarter of 2008. The first estimates for the fourth quarter show plant and equipment below trend. Here is our decomposition of the changes in the composition of real GDP since the first quarter of 2006:
|Excess over trend (billions of dollars)|
|Consumer non-durables and services||-273|
|Plant and equipment||-68|
|Real GDP (sum)||-493|
The collapse of residential construction and of consumption is still the main negative effect visible in the breakdown of real GDP. A decline in plant and equipment investment, all in the fourth quarter, is a new negative factor, as is the decline in inventory investment from its normal level. On the other hand, both parts of international trade are still remarkably favorable–over the course of the recession, imports have fallen $277 billion relative to trend, relieving the negative effect that high imports had in the past. And exports are $182 billion above trend. Real GDP is now almost half a trillion dollars below trend.
The consensus among forecasters is that real GDP will decline by about 1.5 percent to a trough in the middle of this year (3 percent annual decline on average over the first and second quarters), which would place GDP about $900 billion below trend.