Analysis of GDP in Historical Perspective

The final estimate for Q1 GDP came in at 1.9 percent, a fractional increase from last month’s second estimate of 1.8. Here is opening text from the BEA news release:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.9 percent in the first quarter of 2011, (that is, from the fourth quarter to the first quarter), according to the “third” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 3.1 percent.

The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 1.8 percent (see “Revisions” on page 3).

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures, private inventory investment, exports, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.
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Here is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product. I’ve also included recessions, which are determined by the National Bureau of Economic Research (NBER).

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Here is a close-up of GDP alone with a line to illustrate the 3.3 average (arithmetic mean) for the quarterly series since the 1947. I’ve also plotted the 10-year moving average, which, at 1.8, is fractionaly above the Q1 final GDP number.

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Here is the same chart with a linear regression that illustrates the gradual decline in GDP over this timeframe. The latest GDP number is about 0.4 below the approximate 2.2 of the regression at the same position on the horizontal axis.

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And for a bit of political trivia in this post-election period, here is a look a GDP by party in control of the White House and Congress.

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In summary, the Q1 GDP third estimate of 1.9 was little over half the long-term 3.3 GDP average, below the regression and spot on the 10-year moving average. The first quarter of 2011 doesn’t offer evidence of a strong recovery from the Financial Crisis and Great Recession.

Doug Short is the author of dshort.com.