Number: R40007
Title: Financial Market Turmoil and U.S. Macroeconomic Performance
Authors: Craig K. Elwell, Specialist in Macroeconomic Policy 
Abstract: A reduced flow of credit will likely dampen economic activity that is dependent on such borrowing as residential investment spending (purchasing new homes) by households, business investment spending (purchasing new plant and equipment) and consumer spending (purchasing autos, appliances, and higher education) by households. Residential investment spending has fallen over 40% between the fourth quarter of 2005 and the third quarter of 2008, and has on average subtracted about 1.0 percentage point from real GDP growth in each of those six quarters. Non-residential investment spending continued to increase in 2007 and the first half of 2008, but the pace fell steadily, and in the third quarter of 2008 it declined 0.1%. Consumption expenditures had been increasing, but at a decelerating rate in 2007 and the first half of 2008. However, in the third quarter of 2008 consumer spending fell 3.1%. A recent study estimates that the decrement to the U.S. economy's supply of credit is about $1 trillion, leading to a potential drag on real GDP of about 1.8 percentage points for two years.
Pages: 18
Date: December 3, 2008