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October 30th, 2008

GDP Shrinks 0.3%, Better Than Predicted

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U.S. stocks rebounded higher this morning on the release of the Department of Commerce’s report that the real Gross Domestic Product contracted less in the third quarter than economists predicted. The news of Exxon Mobil’s record-setting profit margin’s for the third quarter also led to early gains.

We’re not sure yet if the morning’s early gains will continue throughout the afternoon, yet it’s somewhat surprising and encouraging that traders have taken what could have been construed as bad news, but traded on the good. The real GDP — the output of goods and services produced by labor and property located in the United States — shrank by 0.3% in the third quarter, 0.2% less than predictions. A main component behind the contraction of the GDP was the 3.1% drop in consumer spending in the third quarter. Consumer spending alone supports two-thirds of U.S.-economic growth.

During the third quarter inflation had increased, the effect of stimulus checks had worn off, and job losses continued to grow. Yet, foreign trade proved resilient, adding to U.S.-economic growth for the sixth-straight quarter. According to DismalScientist.com, “Trade was a large positive for the economy, with net exports adding 1.1 percentage points to growth in the third quarter.”

The GDP’s fourth-quarter report for 2008, due to be released in January, may provide a second consecutive quarter of negative GDP. Economic conditions through October have been tough, and are not likely to let up through December. Struggling foreign markets are likely to dry up export growth, yet the spending during the holiday season, although it likely will not rival past seasons, should provide an upswing to the spending report, aiding the GDP.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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