These Awesome Charts Put the Disappointing GDP Revision in Perspective
The Second GDP estimate for Q4 GDP came in at 2.8 percent — a decline from the advance estimate of 3.2 percent. The consensus, according to briefing.com, had expected a slight upward revision to 3.3, and briefing.com’s own estimate was for 3.4. Here is an excerpt from the BEA announcement:
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 2.8 percent in the fourth quarter of 2010, (that is, from the third quarter to the fourth quarter), according to the “second” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.6 percent. The GDP estimates released today are based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 3.2 percent (see “Revisions” on page 3).The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures, exports, and nonresidential fixed investment that were partly offset by negative contributions from private inventory investment and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
The small fourth-quarter acceleration in real GDP primarily reflected a sharp downturn in imports, an acceleration in PCE, an upturn in residential fixed investment, and an acceleration in exports that were mostly offset by downturns in private inventory investment and in federal government spending, a deceleration in nonresidential fixed investment, and a downturn in state and local government spending.
Final sales of computers added 0.30 percentage point to the fourth-quarter change in real GDP after adding 0.29 percentage point to the third-quarter change. Motor vehicle output subtracted 0.31 percentage point from the fourth-quarter change in real GDP after adding 0.49 percentage point to the third-quarter change. More…
Here’s 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).
Here a close-up of GDP alone with a line to illustrate the 3.3 average (arithmetic mean) for the quarterly series since the 1947.
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 midway between the 3.3 average and the approximate 2.2 of the regression at the same position on the horizontal axis.
In summary, theQ4 2010 GDP revision to 2.8 is about 15% below the long-term 3.3 real GDP rate associated with average economic growth.
Doug Short Ph.d is the author of dshort.com.