Wednesday, December 24, 2008

Estimating PCE Growth for Q4 2008

by Calculated Risk on 12/24/2008 09:26:00 AM

Last quarter I was the first to note that PCE would probably be negative in the quarter based on the "two month estimate". That was the first decline in PCE since Q4 1991.

This quarter the two month estimate suggests PCE will be negative again. However most analysts might be a little too pessimistic for Q4 2008.

The BEA reports on Personal Income and Outlays:

Personal consumption expenditures (PCE) decreased $56.1 billion, or 0.6 percent.
That may sound bad, but it is somewhat better than expected.

Maybe December will be especially weak, or maybe October and November will be revised downwards, but the two month estimate suggests real PCE will decline in Q4 by about 2.9% (annual rate).

Other components of GDP - especially invesment - will be very weak in Q4, but most estimates of negative 5% GDP change (annualized) included a decline of PCE in the negative 4% to 4.5% range.

As an example, here is the Northern Trust forecast (last page) of -5.0% GDP, and -4.0% PCE in Q4 2008. Since PCE accounts for about 71% of GDP, maybe these forecasts will be revised up slightly.