March 4, 2008—GDP growth slowed to a crawl in the 4th quarter, as did personal income growth in January. Producer prices for finished goods increased in January while orders for durable goods fell, and trouble continues in the housing market.

Gross Domestic Product
The Bureau of Economic Analysis (BEA) confirmed its estimate of GDP growth at a mere 0.6% annualized rate in the 4th quarter, down significantly from 4.9% growth during the 3rd quarter.
GDP growth weakened amid slower consumption and export growth, a slower rate of federal government spending, and a steeper than expected decline in business inventories. A decline in imports, though, prevented an even more sluggish 4th quarter performance. The overall economy appears weak, especially as the effects of the faltering housing and credit markets ripple through the broader economy. On a year-ago basis, GDP increased 2.5%, slightly below its long-term growth potential of 3%.

Personal Income
Personal income rose a paltry 0.3% in January, down from a 0.5% increase in December. On the inflation front, the top-line PCE deflator increased 0.4% while the core PCE deflator, which excludes food and energy prices, rose 0.3%. On a year-ago basis, the PCE deflator has increased 3.7% while the core PCE has declined slightly to 2.2%. The savings rate held steady at -0.1% for the third straight month.

Producer Price Index
Producer prices for finished goods rose 1.0% in January. After declines in December, prices for finished energy products surged 1.5% in January. Prices for food went up 1.7% after increasing 1.4% in December. These rapid increases drove the headline PPI number higher. Moreover, core prices, which exclude food and energy prices, increased 0.4% for the month. If demand remains stable during the coming months, top-line inflation will likely remain stable, thus giving monetary policy makers some leeway to stimulate growth.

Durable Goods
New orders for durable goods plummeted 5.3% in January following a 4.4% increase in December. Concurrently, new orders for core capital goods, which signify business investment in equipment and software, decreased 1.4%. Inventories and unfilled orders both grew at a rate of 0.6%. Shipments showed improvement, growing at 1.8%.

New Home Sales
New home sales decreased again, dropping 2.8% to 588,000 units sold in January. Furthermore, inventory rose to 9.9 months in January, a level not seen since the housing downturn of the early 1980s. Compared to a year ago, the median price of a new home plunged 15%. A quick recovery in the housing market, even with recent action by the Fed, remains unlikely at this time as there is less liquidity because of tightening lending standards.