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GDP Down: I’m Not Worried.

The big news last week was that 2008 Quarter 4 real GDP was down from Q3 real GDP at an “annualized rate of 3.8%.” Everywhere I looked, people were talking about how bad that is. My opinion? It’s not really that bad.

Let’s take a look at the numbers. (Data is from the U.S. Bureau of Economic Analysis.)

  • Quarter 2 GDP (in year 2000 dollars) was $11.727 trillion.
  • Quarter 3 GDP (in year 2000 dollars) was $11.723 trillion.
  • Quarter 4 GDP (in year 2000 dollars) was $11.599 trillion.

So from the peak, we’re off $128 billion, or just under 1.1%. Sure, it’s not good. But it hardly seems catastrophic.

For comparison–and I’ve mentioned this before–from 1929 to 1932, real GDP fell by 27%. A 27% decline is an entirely different sort of thing than a decline of barely 1%. So please, let’s stop pretending this is anywhere in the ballpark of a depression.

Also of note: The 27% decline in real GDP during the Depression corresponded to a roughly 80% decrease in share values. So far, our 1.1% decline in real GDP has corresponded with a roughly 40% decrease in share values. Anybody else think the markets might be overreacting?

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Comments

  1. GDP in Q2 of 2007 was lower than that. I think we were getting by back then, so it’s safe to say we’ll get by here as well.

    Good post, I like your common sense!

  2. Hi Weakonomist. I like your way of looking at it! That’s a neat point you make.

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