Large Downward Revisions to GDP

The Bureau of Economic Analysis announced here that real GDP in the first quarter increased at a seasonally adjusted annual rate of 1.8%, revised down from the second estimate of 2.4% and the advance estimate of 2.5%. This revision, down 0.6 from the second estimate, is quite large historically. As can be seen here, the average revision from the second to the third estimate (without regard to sign) for real GDP from 1983-2009 is 0.2 with a standard deviation of 0.2.

The weakness of current real GDP growth compared to other recoveries can be seen in the graphs below. First, in the GDP Growth chart below, the current value of gdp growth, 1.8% is highlighted in red. The visual makes it pretty clear that the current recovery lies below that of the earlier periods going back to 1995. That is, the year-over-year change (the blue line) is mostly higher from 1995-1999 than it was 2002-2006; and 2002-2006 looks to be higher than 2009-2013.

gdprealchgm-2013-07-02

The graph below shows that over the period 1947-1983 average real gdp growth was 3.64%; since 1983 it has been 2.72%. The latter period has been referred to as the Great Moderation as it is evident that the volatility in gdp growth has been, well, more moderate compared to the earlier period. Evidently the Great Moderation has also witnessed a moderation in average growth.
gdpreal-chg-q-break-2013-07-02

The graphs below show how this recession and recovery compares to others. Typically, 22 quarters past the previous peak we are about 15% above the previous peak–in the current recovery we are less than 5% above. In all of the graphs below, what is evident is that the rate of growth for every statistic is lower than that of all previous recessions and recoveries since the 1970’s, i.e., the slope of the dark blue line is flatter than any of the other lines. This underscores the fact that the weakness of the recovery is pervasive.

rgdp-2013-06-26

The large decline in output growth from the second to third revision was due in large part to personal consumption expenditures that were revised down from the second estimate  (3.4% down to 2.6%), of which services saw a large downward revision (3.1% down to 1.7%).

The only component of GDP that does not look unusually sluggish is fixed private residential investment.cons-2013-06-26 It reflects the widely reported broad recovery in the housing markets.  But, any optimism should be tempered by the extraordinary collapse and the duration of the collapse in residential investment.

services-2013-06-26

imports-2013-06-26

inv-2013-06-26

rfi-2013-06-26

govcons-2013-06-26

3 responses

  1. Peter, you exagerate. The Grat Moderation ended in 2007 (maybe a little earlier when Greenspan stepped down). In any case, the mean growth from 1983 to 2007 was 3,2%, a little lower than the 3.6% from 1947 to 1983. But the growth volatility in 1984-07 was only 2.1, less than half the volatility observed during 1947-83 of 4.9. Therefore the two means are statistically very similar. From 2008 to now, average growth has only been 0.6% with a standard deviation of 3.2. It´s a whole different world!

    • Marcus, thanks for the comment. I don’t disagree with you on the whole, we can argue about the time periods over which to compare GDP growth; however, The Great Moderation was not thought to be a temporary phenomenon. The point was made in the post that indeed after 2007 the growth rate is discernibly lower.

      • “Not temporary phenomenon”. Many believed it was just luck! In fact it lasted as long as nominal stability was obtained. It went up in smoke when Bernanke thought it was all about infllation targeting, something that Greenspan never acknowledged.To Greenspan it was about “Appropriate Monetary Policy”. In practice, what that meant was “keep NGDP on a stable path”

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