This morning the government released their first estimate for the Gross Domestic Product, or GDP, from the fourth quarter of 2008. At first glance the report doesn’t appear quite as bad as some first thought it would be, but one should be cautious to read too much into it. The initial advance 4th quarter GDP figure shows GDP falling by 3.8%. That is certainly a very poor number, in fact is the worst since 1982, but analysts had been projecting a drop of 5.5%. Having said that, the government is likely to revise the numbers in the future and that 3.8% may end up turning into 4% or more on the downside.

The worst news is that it is very likely that the first quarter GDP number for 2009 will be much worse than the fourth quarter in 2008. Inventory which helped hold the number up a little in late 2008 has had to be gotten rid of and companies are laying off workers at a faster pace now than they have at any other point in this recession. The writing is certainly on the wall for things to get worse instead of better with the next couple of GDP reports from the government.

Another thing for individuals and investors to remember is that these GDP figures are more backwards looking than most economic reports, so they mean less to the stock market and the current economic state. The monthly employment data as well as consumer confidence readings and retail sales numbers all do a better job of capturing a more recent snapshot of how things are in the American economy. In my opinion none of the numbers are as important as the employment report, because as long as companies are increasing the amount of layoffs the consumer won’t be in a good position to help the economy turnaround. The bottom line; watch the GDP number, but remember it is not a forward indicator at all.