GDP: Nothing to write home about
The Commerce Department's Bureau of Economic Analysis released its "advance" estimate for second-quarter gross domestic product this morning. GDP shrank at just a 1% annual rate in the quarter (adjusted for inflation). The consensus forecast among the sad folk who while away their days predicting quarterly GDP numbers had been for a 1.5% decline, so there are a lot of happy headlines today about better-than-expected GDP numbers. Don't read too much into them.
Why not? First, there's the usual litany of GDP caveats. The number is for the quarter that ended a month ago, so it's old news. At the same time, though, it's not reliable news—much of the "advance" GDP estimate is extrapolation that will be revised as more data come in. On Aug. 27 we'll get the "preliminary" "second" GDP estimate. Then on Sept. 30 it's time for the "final" "third" GDP number. which isn't final at all because it's subject to one of the Then come BEA's "benchmark" revisions every few years. They just released the results of such a benchmark revision today, in fact. Here's what 2008's GDP numbers were in the advance estimates and after the benchmark revisions.
Advance: Q1 0.6%, Q2 1.9%, Q3 -0.3%, Q4 -3.8%
Revised: Q1, -0.7%, Q2 1.5%, Q3 -2.7%, Q4, -5.4%
Somewhat different, huh? Add in all the measurement problems and judgment calls inherent in estimating real GDP growth (many of them having to do with measuring inflation), and it's pretty clear that the difference between 1% and 1.5% is probably meaningless.
Still, there were some interesting numbers within the GDP report. Consumer spending was down 1.2%, after rising slightly in the first quarter. Private investment was down 20.4%—not nearly as bad as the first quarter's spectacular 50.5% decline, but still pretty danged bad. What kept the GDP contraction to just 1% was a 5.6% rise in government spending (made up mostly of a 10.9% increase in federal spending) and an improvement in the balance of trade: imports fell 15.1% while exports fell only 7%.
What's it all mean? Conference Board chief economist Bart van Ark says the takeaway is that "with capital spending still falling and unemployment rising, neither investors nor workers are likely to see strong rewards anytime soon." But Ian Sheperdson of High Frequency Economics says that a bigger-than-expected $141 billion decline in private inventories (which should clear the way for future inventory increases), "coupled with the apparent surge in car sales under the clunker program, makes a positive GDP number in Q3 a good deal more likely." You confused? Me too.
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1
"What kept the GDP contraction to just 1% was a 5.6% rise in government spending (made up mostly of a 10.9% increase in federal spending)..."
Did those numbers come with a little tag proclaiming "Your Stimulus Dollars at Work"?
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2
trivial, but they killed the 'preliminary' and 'final' language. It's 'second' and 'third' now (thus ending the final isn't final conundrum).
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3
The only positive quarter in 2008 had the Bush-stimulus rebate checks which don't look like they had any knock-on effects. And a repeat effort of 'stimulus tax cuts' buoyed the second quarter. It'll be interesting to see how the spending / investment side stimulus impact unfolds in the coming quarters.
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4
[...] A fourth consecutive quarterly decline for GDP. (Calculated Risk also EconomPic Data, Alea Blog, Atlantic Business, Curious Capitalist) [...]
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5
@tegwar Thanks! I had noticed that the future releases calendar talked about "second" and "third" but it did not penetrate my thick head that this was the new lingo.
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6
It is sad when a loss of GDP even though it is smaller than predicted is supposed to be a good thing. Let's wait and celebrate a gain in GDP instead.
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7
Because the numbers are easier to come by, economists seem to prefer to see only part of the economic picture when calculating GDP. For example, if an acre of forest is cut down and the trees sold, that action increases the GDP. The value of those trees to environmental health has decreased at least an equal amount by their cutting, but is which column is the lower value of the environment recorded? None, I'd guess.
Is their any movement in the accounting/financial sector to include the externalized cost of environmentally hazardous actions? Such a change would be monumental in improving corporate responsibility, as well as more accurately calculate GDP. -
8
[...] Największą pozytywną kontrybucją do PKB była zmiana poziomu eksportu i importu, która dodała 1,4% do PKB. Import spadł o 15,1%, eksport zmniejszył się o 7% – poprawa bilansu handlowego przełożyła się na wyższy PKB. Proces jest niezbędny do powrotu amerykańskiej i globalnej gospodarki do stanu równowagi dlatego należy oceniać go pozytywnie, tym niemniej, to właśnie osłabienie aktywności gospodarczej dodało 1,4% do PKB. [...]
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