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Is the Economy’s 2nd Quarter Performance Overrated?

28 Aug

[courtesy Google Images]

[courtesy Google Images]

Yahoo Finance reports that,

 

“The latest numbers on GDP growth show an encouraging upturn. After a dismal drop in first quarter output, GDP grew by 4% in the second quarter, which many economists consider a convincing sign that more prosperous times are ahead.

“But, what if the reported 4% growth in the Second Quarter turns out to be 2%?

 

That “what if” is not unlikely.

In fact, if the economy shrank by 2.1% in the first quarter and improved by 4% in the second quarter, the economy grew, on average by about 4%-2.1% = 1.9% average for the first two quarters. That calculation is based on the assumption that the government’s latest reports of 4% growth in the second quarter are accurate and true.

However, it’s common practice for Bureau of Labor Statistics (BLS) preliminary estimates of quarterly performance to be repeatedly revised during the next quarter.

For example, the preliminary reports on economic growth in the first quarter were, initially, positive. Later, the BLS reported that the GDP actually decreased by minus 1%. And later, they reported that the first quarter’s GDP decreased at an annual rate of minus 2.9%. And later, they said, no, wait, first quarter GDP only shrank by 2.1%.

Therefore, after shrinking by 2.1% in the first quarter, “what if” the BLS revised the second quarter GDP growth from 4% to just 3%? The average rate of GDP increase for the first two quarters would a positive 0.9%.

“What if” the BLS revised its reports of 4% growth to, say, a positive 2.0% ? The average growth for the first two quarters of A.D. 2014 would be minus 0.1%.

What if the BLS revised its reports of 2nd quarter GDP to a minus 1% (as they did early on in reporting the first quarter’s change in GDP)? The average growth for the first two quarters of this year would be almost minus 2%.

 

Implications:

We should expect the BLS to revise the initial reports of second quarter GDP growth downward from the original plus 4.0%;

Even if the second quarter growth is only revised downward to 3%, the resulting average GDP for the first half of the year will be less than a positive 1%. Thus, our alleged economic “recovery” is not yet here, nor is it in sight.

The BLS won’t have to revise its second quarter report downward by very much to show true negative growth in GDP for the first two quarters of this year.

Two consecutive quarters of negative GDP growth is the working definition for a recession.

 

Conclusions:

If we’re in a “recovery,” it’s weak. But we may already be in a recession.

If we’re really in a recession, will the BLS provide revised numbers on the second quarter’s GDP to honestly reflect that unpleasant reality?

 

 
1 Comment

Posted by on August 28, 2014 in Economy, Lies, Values

 

Tags: ,

One response to “Is the Economy’s 2nd Quarter Performance Overrated?

  1. palani

    August 31, 2014 at 6:53 AM

    For some reason or other discussion of economic recovery reminds me of the SIR (susceptible infected recovered) model they use for medical epidemics with a twist. The twist is that the recovered are actually the number of people who are still carrying the mindset that economy belongs to them or that there is any benefit to a booming economy. The entire population is susceptible to look for new solutions when the present system doesn’t work and the infected are the ones actually seeking those solutions rather than an economy structured just for them by government.

     

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