2008 GDP: Growth and Updates by Quarter

The Financial Crisis Bludgeons the Economy

stock-trader-2008.jpg
A trader works on the floor of the New York Stock Exchange near the end of the days trading November 12, 2008 in New York City. The Dow dropped more than 400 points after Treasury Secretary Henry Paulson announced changes to the financial rescue package. Photo by Mario Tama/Getty Images

In 2008, the Great Recession hit with a vengeance. The economy produced $14.7186 trillion in goods and services, as measured by real Gross Domestic Product. That was 0.3% lower than the prior year. (Source: NIPA Table 1.1.1. Bureau of Economic Analysis.)

The subprime mortgage crisis of 2006 and the banking liquidity crisis of 2007 had finally spread to the general economy and the stock market.

There were three quarters where the economy contracted.

 In the First Quarter (January - March), the economy contracted 2.7% and real GDP was $14.8895 trillion.  (Source: Interactive NIPA Table 1.1.6, Bureau of Economic Analysis.)

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%. We didn't get that report until the end of April. (See Table below.)

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 - 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 2013 revision. It showed a solid 2% growth rate and real GDP of $14.9634 trillion.

In the Third Quarter (July - September), the economy contracted 1.9% and real GDP was $14.8916 trillion according to the final revision.

By that time, the government had bailed out mortgage guarantors Fannie and Freddie, and insurance company AIG. 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.

 

The economy contracted 8.2% in the Fourth Quarter (October - December). Real GDP was just $14.557 trillion. No one was surprised. In November, the Dow fell to 7,552.29 from its 14,164.53 high set on October 9, 2007. For more, see 2008 Financial Crisis Timeline.

GDP Growth Rate Estimates and Revisions: How It Works

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.

The BEA revised its estimates each year, based on additional data. Those revisions come out in June each year. They usually 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. Nevertheless, Wall Street is so hungry for any data that it hangs on every BEA report.

 

Take a look at Q3, and you'll see the recession was much, much worse than we knew at the time. The BEA revised estimate shows the economy contracted 8.3%, much worse than the 5.4% contraction in the original estimate. It is also worse than any quarterly contraction in any recession since The Great Depression. (See History of Recessions for more.)

Period  Initial Estimates Revisions
 Advance Second Final2009 2010 2011 2013Final 
2008  1.3% 1.1% 1.1% 0.4% 0% -0.3% -0.3% -0.3%
Notes        
Q1 0.6% 0.9%  1.0%  1.0% -0.7% -1.8%  -1.8% -2.7%
NotesIt felt like a recession, even with slight growth.Exports made it seem that growth was better. Revisions revealed the recession had already begun.
Q2 1.9% 3.3% 2.8% 1.5% 0.6% 1.3% 1.3% 2.0%
NotesLooked like the worst was behind us.New data showed more exports and fewer imports than originally thought.This downward revision followed the Bear Stearns bailout, fueling more pessimism.     
Q3 -0.3% -0.5% 0.5% -2.7% -4.0% -3.7% -2.0% -1.9%
NotesGrowth was negative for the 2nd time in a year. It was due to a 3.1% decline in consumer spending, the first 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.      
Q4  -3.8%  -6.1%  -6.3% -5.4% -6.8% -8.9% -8.3% -8.2%
NotesThe worst drop since the 1982 recession. The bailout prevented worse collapse.New data revealed the contraction was much worse than originally thought.The worst drop since Q1 1982, when GDP fell 6.4%. A strong dollar cut exports.      

More GDP by Year

For earlier years, see U.S. GDP History