In 2008, the Great Recession hit with a vengeance. The 2006 subprime mortgage crisis and the 2007 banking crisis had spread to the general economy.
The economy produced $15.6 trillion in goods and services, as measured by real gross domestic product (GDP) in 2012. That was 0.1% higher than the prior year.
The annual GDP numbers hid the damage told by the quarterly numbers. The economy contracted 8.5% in the fourth quarter. In addition, the true destruction wasn't known in 2008. The Bureau of Economic Analysis (BEA) revised the level of contraction throughout 2008. Initially, it seemed the economy only contracted 3.8%. Revisions in subsequent years revealed the extent of the suffering.
Tracking the Crisis
In 2008, the economy contracted in three out of the four quarters. The chart below summarizes these changes.
In the first quarter, covering January to March, the economy contracted by 1.6%, and real GDP was $15.7 trillion. That would have signaled recession had we known it at the time. Instead, the BEA initially reported the economy had grown 0.6%. And we didn't get that report until the end of April when the Advance report was released.
That was right after the Federal Reserve convened its first emergency meeting in 30 years to bail out Bear Stearns. In April, everyone thought that the worst was behind us.
We looked forward to better growth in the second quarter, April to June. When the BEA released its Advance report at the end of July, things looked good. It said the economy had grown by 1.9%. That was supported by the 2022 data. It showed a solid 2.3% growth rate and real GDP of $15.8 trillion.
In the third quarter, July to September, the economy contracted 2.1%, and real GDP was $15.7 trillion, according to the 2022 data. By that time, the government had bailed out mortgage guarantors Fannie and Freddie and insurance company American International Group (AIG).
Investment bank Lehman Brothers had gone bankrupt in September, triggering a 777.68 point crash in the Dow. The Advance release came out at the end of October and showed just a 0.3% contraction. Consumer spending fell 3%, the first drop since 1991 and the largest since 1980.
The economy contracted 8.5% in the fourth quarter, October to December. Real GDP was just $15.4 trillion. The Troubled Asset Relief Program bailout prevented a worse collapse. In November, the Dow fell to 7,552.29 from its 14,164.53 high set on October 9, 2007. The crisis sent investors toward the dollar as a safe haven. The strong dollar cut exports. The 2008 financial crisis timeline describes the events in more detail.
GDP Growth Rate Estimates and Revisions: How It Works
The BEA revised its estimates each year, based on additional data. Those revisions come out in July each year. They accompany a review of other years. The BEA recalibrates all statistics based on additional data.
The table below shows the initial estimates and all revisions for each quarter in 2008. The BEA releases the Advance estimate the month after each quarter ends. The Second estimate is released the next month and the Third the month after that.
These revisions make people suspicious of the BEA and all government reports. It looks like they just don't know what's going on. They don't do a good job of explaining it. Yet, Wall Street is so hungry for any data that it hangs on every BEA report.
For example, the BEA released the Advance estimate for the first quarter at the end of April. It reported the Second estimate at the end of May, and the Third estimate came out at the end of June.
Take a look at Q4, and you'll see the recession was much, much worse than we knew at the time. The BEA 2018 revision shows the economy contracted 8.4%, much worse than the 3.8% contraction in the Advance estimate. It is also worse than any quarterly contraction in any recession since the Great Depression, as revealed by a close look at the history of recessions.
- Advance and Second estimates: Felt like a recession even with slight growth.
- Final estimate: Exports made it seem that growth was better.
- Revisions: Revealed the recession had already begun.
- Advance estimate: Looked like the worst had already happened.
- Second and Final estimates: New data showed more exports and fewer imports than originally thought. Growth boosted GDP.
- Revisions: Growth was revised down from the Second estimate.
- Advance, Second, and Final estimates: Growth contracted for the 2nd time in a year. It was less than a percentage point, misleading economic analysts into thinking the recession wasn't that bad.
- Revisions: The economy had contracted by a hefty 2.1%
- Advance: The worst drop since the 1982 recession.
- Second and Final estimates: New data revealed the contraction was much worse than originally thought.
- Revisions: The worst quarterly contraction since the Great Depression.
More GDP Facts: Current | 2009 | U.S. GDP History
Bureau of Economic Analysis. “National Income and Product Accounts Tables: Table 1.1.6. Real GDP,” Select “Modify,” Select “First Year 2008,” Select “Series Annual,” Select “Refresh Table."
Bureau of Economic Analysis. “National Income and Product Accounts Tables: Table 1.1.1. Percent Change From Preceding Period in Real Gross Domestic Product,” Select “Modify,” Select “First Year 2008,” Select “Series Annual,” Select “Refresh Table.”
Bureau of Economic Analysis. “National Income and Product Accounts Tables: Table 1.1.1. Percent Change From Preceding Period in Real Gross Domestic Product,” Select “Modify,” Select “First Year 2008,” Select “Series Quarterly,” Select “Refresh Table.”
Bureau of Economic Analysis. “National Income and Product Accounts Tables: Table 1.1.6. Real GDP,” Select “Modify,” Select “First Year 2008,” Select “Series Quarterly,” Select “Refresh Table."
S&P Dow Jones Indices. "DJIA Daily Performance Report," Select "Excel spreadsheet."
Bureau of Economic Analysis. “Data Archive: National Accounts (NIPA).”