Today’s first guess at fourth-quarter GDP revealed what everyone already knew: the economy slowed sharply in the last three months of 2007 to a 0.6% annual pace in real (inflation-adjusted) terms, the Bureau of Economic Analysis reported. That’s a world or two below the third quarter’s 4.9% surge.
What’s the source of the downshift? Real estate–residential real estate, to be precise, as the table below shows. Spending on construction of new houses, apartment buildings and all the associated products and services took another hit in the fourth quarter, tumbling nearly 24%. Even worse, that follows a 20.5% tumble in the third quarter. In fact, you have to go back to the fourth quarter of 2005 to find a positive number in the residential real estate investment column in GDP reports. Since then, the sector’s been mired in red for each and every quarter and the toll has grown on the overall economy. The only difference this time: the 23.9% slump in housing investment in last year’s fourth quarter is the deepest yet for this cycle, and the mounting pressure is obvious via the weak economic growth generally.
The good news is that the pain is still largely contained to real estate, at least it was in the fourth quarter. That may or may not continue this year, but as we write consumer spending, while slower in 2007’s last three months relative to the previous quarter, still appears to be rising. Alas, the 2.0% rise in consumer spending is unimpressive relative to the past few years, but beggars can’t be choosy. With that in mind, we note that Joe Sixpack’s spending pace comfortably exceeded the economy’s growth rate as of late last year. Perhaps we should all be thankful for small (and increasingly precarious?) favors.