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TD Economics
Commentary
January 30, 2009

U.S.: GDP BAD, BUT IT COULD HAVE BEEN WORSE

• The U.S. economy shrank by a huge 3.8% Q/Q In terms of prices, indications of easing price pressure
ann, but handily beats expectations. were everywhere, with the core PCE deflator rising by a
• Weak consumer spending and slumping invest- modest 0.6% Q/Q ann., which is significantly lower than
ment were the main culprits. the 2.4% Q/Q gain in Q3, and was lower than the 1.0% Q/
• All indications are that a turnaround in economic Q gain expected by the markets. This may speak to a soft
activity remains some way off. core PCE deflator for December, which is out next week.
The GDP deflator was also weak, falling for the first time
U.S. economic activity declined by its largest margin
since 1954 with a 0.1% Q/Q drop, coming on the heels of
since the early 1980s (and for the second consecutive
the 3.9% Q/Q gain in the previous quarter.
quarter), falling by a huge 3.8% Q/Q ann. The decline,
Despite the better than expected print on U.S. eco-
however, was far less than the 5.5% M/M plunge ex-
nomic activity, the fact remains that the U.S. economic
pected by the markets, and comes on the heels of the -
recession intensified in a fairly dramatic fashion in Q4. And
0.5% Q/Q ann. in Q3. The main culprit this month was
with the financial sector turmoil and labour markets woes
consumer spending, which declined for the second con-
likely to continue for some time, we continue to believe
secutive quarter, falling by 3.5% Q/Q ann. and subtract-
that a recovery in economic activity remains some way
ing 2.5 ppts from overall GDP, though the decline in spend-
off, with the recession expected to drag well into this year.
ing was somewhat less than we expected. There was also
This, despite the significant monetary stimulus that has al-
weakness in investment spending, as gross private domes-
ready been administered to the U.S. economy, and the
tic investment subtracted another 1.8 ppts from GDP. On
expected massive fiscal stimulus package that should be
the other hand, the performance of net trade was some-
unveiled in the coming weeks.
what better than expected with trade adding 0.1 ppt to
GDP, which was in contrast to market expectation for net
Millan Mulraine
trade to be a significant source of drag in the quarter.
Economics Strategist
TD Securities

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TD Economics Commentary January 30, 2009