Monday, December 28, 2009

On the Change in Q3 GDP

I hope you all are having a nice holiday season thus far. I am back in civilization, though I plan to keep posting light the remainder of the week.

I did want to touch upon the large downward revision to GDP prior to this becoming "last years news". The AFP reported:

The US economy limped forward at a 2.2 percent pace in the third quarter, according to government figures Tuesday that suggest a tepid recovery from recession.

The downward revision from last month's estimate of 2.8 percent growth in gross domestic product (GDP) came primarily from a weaker contribution from business investment, as well as slightly slower consumer spending growth.

The Commerce Department report confirms that the world's biggest economy swung back to growth in the July-September period after four quarters of contraction in the worst recession in decades, but with little forward momentum.

Scott Brown, chief economist at Raymond James & Associates, said the report was "a bit disappointing" and suggests "that underlying domestic demand is pretty soft."
Brown said he expects a jump in growth to at least 4.0 percent in the current fourth quarter, but says much of that will come from restocking of business inventories drawn down in the recession.

Below is a chart detailing what was revised down from the initial 3.5% release to the "final" (i.e. it can still be revised) 2.2% figure. It turns out... everything (consumption, investment, government spending, net exports).

Overall contribution remained centered around the rebound of the consumer in the face of mounting debt / high unemployment, but subsidized deals (i.e. cash for clunkers) winning the battle. Growth in investment and government spending outpaced the negative impact of the rebound in imports (what... you thought we were consuming only American made items????).

Source: BEA


  1. I am struck by the magnitude of the total change in these revisions over two months. And I'm increasingly (a) more skeptical about USG economic statistical methodologies and (b) more doubtful about the legitimacy with which they are applied (i.e.--data spinning).

    I would really like to know in a statistical sense how extreme these revisions were. My guess is that they were at least two standard deviations from the norm since WWII.

    If you have the time to show graphically how much these revisions have ebbed & flowed over time, that would be very useful. My guess is that aberrations are greater in periods of extreme economic flux (peaks & valleys of cycles) and that they may well have been worse than normal the last two years for non-economic reasons.

  2. here's a paper on the reliability of GDP (though it is produced by the BEA):

  3. I thought Eric Sprott's comments yesterday on the stock market and gold were pretty interesting:

    and there's also a bunch of good stories on his firm's site on gold as well:

  4. Jake--I took a look at the linked paper although it was tough sledding. It is reasonably complete, but focuses on averages--not variability--which is where I think the issue is now. Needless to say, on average, BEA did very well in assessing GDP over time, according to BEA.

    The real question is whether their readings were average, better, or worse at critical economic turning points (like the present economic crisis) and the extent to which their results at these times reflect political as well as economic considerations. My guess is that the recent major changes in GDP growth valuations are at the extreme and that the initial "preliminary" evaluations reflected more than just economic measurements.

    Maybe I'll go back and look at the data, but that will be a long slog.