GDP, new and revised!

July 31st, 2013 at 10:39 am

If you’re anything like the nerd I think you are, today’s GDP report, with revisions back to the beginning of time—that’s 1929 in government accounting—is nothing short of fascinating.  Not so much in that it changes the world as we knew it, though there’s a little of that, but just because of all the nuanced differences in how we conceive of and tote up that beast we call the US economy.

First, the headline stuff:

Today’s GDP report found the US economy expanding by a better-than-expected 1.7% in the second quarter of the year.  That’s still just a moderate growth rate, and more importantly, since the quarterly numbers are jumpy, you get a more reliable read if you look at the year-over-year growth rates.  They show real GDP up only 1.4% over the past year, a pace that’s similar to last quarter’s and a notable deceleration over the growth rates we were posting a year ago (see figure below).

Part of this is linked to fiscal headwinds.  The revised data have the real GDP essentially flat at the end of last year, up 0.1% in 2012q4, with the government sector subtracting a big 1.3 percentage points from growth.  And that was before the payroll tax increase and sequester took hold.

The absence of price pressures in today’s report supports the view that growth is moderate at best.  The core personal consumer price index from the GDP report, closely watched by the Fed, was up only 0.8% on an annualized quarterly basis and 1.2% over the past year.  There’s been a lot of talk about doves and hawks of late, and sure, inflation expectations are even more important to Fed policy makers than the actual growth rates.  But the data in this report clearly support continued accommodation.

Net exports have also been a drag lately, subtracting just under a point from this quarter’s growth rate.  I noted the President was touting the growth of our exports this week, and I’m with him all the way on the importance of that.  But let’s stay real here: what matters for growth is the net.  Don’t just tell me how many runs the Nats scored; you gotta tell me how the other team did too.

Bottom line, even if you want to go with the more volatile quarterly number (1.7%), we’re still struggling to grow at trend, which is around 2%.  Now, you might be thinking, “what’s so bad about that—isn’t the trend your friend?”

It’s absolutely fine to grow at trend once you’re where you want to be.  Think of it as an airplane leveling off at 30,000 feet.  It had to climb to get there.  In terms of the economy, after a deep recession, you have to earn your trend through a number of bounce-back quarters.  That hasn’t happened yet.  Trend growth pretty much ensures your unemployment stays about where it is, which is too high.

So, bottom line, the resilient US economy continues to expand, housing has become a reliable contributor to growth, and the much vaunted US consumer lives and spends on.  But four years into a recovery that officially began in the second half of 2009, we’ve yet to achieve escape velocity from the residual pull of the Great Recession, in no small part due to austerity measures creating fiscal drag.

OK, what about those revisions back to 1929?!

Well, Dean Baker and I will have a lot more to say about that tomorrow.  For now, consider this:

–the additional valuation of certain “intangibles”—technically “intellectual property products”—added 3.6% or $560 billion to 2012 GDP.  Congrats, all!

–I know that sounds fishy, but there’s logic to it.  We’ll explain its strengths, limitations, and implications tomorrow.

–The revisions lift the level of GDP but not the real growth path.  Between 1929 and 2012, real GDP grew 3.3% as opposed to 3.2%, pre-revision.  Even with compounding, that difference amounts to 9% more growth over more than 80 years.

–More recently, the revisions support the story I told above re today’s report: from 2012q1-2013q1, real GDP was up 1.3% revised, 1.7% unrevised.

gdp13q2

 

Source: BEA

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3 comments in reply to "GDP, new and revised!"

  1. Luemas Rellok says:

    This is actually something i have been running all over the map trying to get answered. Was debating asking Prof. Baker, but i just got into a huge argument with him over whether compensation should be counted dollar to dollar with wages, so i would prefer not to upset him more.

    The BEA is proposing adding the development cost of products to the current calculation for the Gross domestic product, on top of the current value. However, the Gross domestic product is calculated by adding together all the sale prices of all products made in the united states. (If I am miss-constructing here please explain.)

    If markets are pricing efficiently, then all costs of production should be reflected in the final sale price. If it costs more to develop and build a washing machine then the price the washing machine sells for, then producers should stop selling washing machines until the price rises to the level at which all inputs are covered by the sale price. If producers continue operating at a net loss, then they go out of business, and again the price rises (since there are fewer washing machines) until the price exceeds the costs.

    For the BEA to be adding the development costs into the GDP mean that the development costs are no included in the sale prices of goods and services in the market, OR that the BEA is trying to count the development costs twice. If the first, then we have wide scale market failure on a historic level. Literally, that would mean that markets are not now and have never set prices efficiently. If the second, then the official records of the US government have just thrown the effort of American workers under the bus for no credible reason other then to make entrepreneurs feel good. This is first tier Randian garbage, completely altering the basic measured of the economy to justify the wealth of the few, by counting their contribution twice. Either the price of development is already reflected in the final products price, or markets have failed. How does what the BEA double counting investment make any semblance of sence?


  2. readerOfTeaLeaves says:

    Well, I suppose that hauling David Rothkopf’s “Power, Inc” along to the swimming pool qualifies as ‘nerdishness’ these days, but here’s what I gleaned from his discussion about using GDP as a stat:

    1. GDP is a blunt statistical instrument, originating in 1934 in a report to the U.S. Congress.
    2. GDP is a dicey stat in an era of globalization.
    3. GDP says nothing whatsoever about inequality, nor other measures of social stability within an economy.
    4. GDP does *not* measure quality of life (nor does it account for environmental pollution or other negative externalities).
    5. Despite 1 – 4, GDP is the most widely-used measure of economic performance.

    And here’s what really caught my attention in Rothkopf’s discussion:
    “Choosing metrics to measure our performance as a society is not a value-free proposition. As a country, America has consistently relied on indicators that keep us focused on the interests of business, financial institutions, or the defense industry, whereas equity, quality of life, and even social-mobility metrics are played down.”
    [pbk edition, 2012; pp 297 – 299]

    IMVHO, the media (and policymaker) emphasis on GDP — without putting it into context or explaining that it’s an economic cudgel — plays right into the sort of neoliberal, finance-based nonsense exhibited by Larry Kudlow and Grover Norquist in one of your recent CNBC links. IIRC, Kudlow opened the CNBC segment, on which Dr. B was a guest, bellowing something like, “Will the President put forth a plan for pro-growth tax reform?!” Using GDP as a key stat appears to reduce economic policy discussions to simplistic pro-tax/anti-tax claims. This utterly fails to analyze the quality or sustainability of the economic activity that is supposedly being measured.

    People who assume that GDP is an accurate, key economic measure are probably likely to view ‘taxes’ as “harming growth/GDP”. To them, almost any expenditure is a ‘growth inhibitor'; ergo they actually believe that they can always improve any economy by ‘cutting taxes’ (i.e., cutting research funding, cutting education funding, cutting libraries, cutting transportation funding, yadda, yadda…). Their logic is akin to an 18th century physician treating a patient for fever: more leeches! Or in the case of Norquist, “More tax cuts”. It’s archaic.

    I wouldn’t want Kudlow or Norquist to give themselves migraines trying to get their heads around a newer sort of economic research: “The Spirit Level” . But then, perhaps that only makes me me more ‘nerdy’ than Kudlow or Norquist…? [Not to worry: my ego can handle it ;-)]

    The research in “The Spirit Level’s” collection of epidemiological research raises some serious questions about the prudence of using a blunt measure like GDP to assess economic performance. In a complex world, it’s hard to believe that GDP can continue to be an adequate economic measure.

    If the economy has been transitioning from an industrial-based economy, as it was in 1934 when the blunt stat of ‘GDP’ was invented, to a more ‘digital’ economy (which creates – and relies upon – complex adaptive systems), then it seems likely that the use of GDP as a key economic stat is increasingly misleading.

    It is actually pretty stunning that such impressive growth over decades has ended up concentrating in such a small percentage of the population; it appears as if basing too much economic discussion on the clumsy stat we call ‘GDP’ is not working out well for the larger society it is supposed to serve.

    I have the highest regard for Dean Baker, so look forward to the forthcoming analysis.


  3. purple says:

    The world economy would be in a state of collapse if the U.S. wasn’t running huge deficits. And looking at the net trade deficit data from 2008 0r 2009 supports this. This is how the system is constructed now, and a lot of it was by design. One can’t extrapolate the economic model of a major (and celebrated) ‘U.S.’ corporation like Apple and not see massive trade deficits.


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