2008 GDP, Growth, and Updates by Quarter
The Financial Crisis Bludgeons the Economy
Tracking the Crisis
There were three quarters where the economy contracted.
- In the First Quarter, covering January to March, the economy contracted 2.3% and real GDP was $15.7 trillion. That would have signaled recession, had we known it at the time. Instead, the Bureau of Economic Analysis initially reported the economy had grown 0.6%. And we didn't get that report until the end of April, as the table below reveals. 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 1.9%. That was supported by the 2018 revision. It showed a solid 2.1% 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 final revision. By that time, the government had bailed out mortgage guarantors Fannie and Freddie and insurance company American International Group. Investment bank Lehman Brothers had gone bankrupt in September, triggering a 777 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 3.1%, the first drop since 1991 and the largest since 1980. That was driven by a 6.4% drop in purchases of clothing and food, the biggest since 1950.
- The economy contracted 8.4% in the Fourth Quarter, October to December. Real GDP was just $15.3 trillion. The Troubled Asset Relief Program bailout prevented worse collapse. In November, the Dow fell to 7,552.29 from its 14,164.53 high set on October 9, 2007. A strong dollar cut exports. The crisis sent investors toward the dollar as a safe haven. 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 June each year. They accompany a review of other years. The BEA recalibrates all statistics based on additional data.
Of course, 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.
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 Final the month after that.
For example, the BEA released the Advance estimate for Q1 (January - May) at the end of April. It reported the Second estimate at the end of May, and the Final 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 original 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.
- Advance, Second, and Final estimates: Growth contracted for the 2nd time in a year.
- Advance: The worst drop since the 1982 recession.
- Second and Final estimates: New data revealed the contraction was much worse than originally thought.