July 27, 2018

Prior-Quarter and Prior-Year Revisions to GDP: Biggest News Is Improvement in Reported Bush 43-Era Growth; Also, Obama Era Now Shows Three Quarterly Contractions

Filed under: Economy,Taxes & Government — Tom @ 11:48 am

The government revised previously published quarterly and annual GDP figures today.

The earliest annual revision is to 1933 (!), reducing that year’s contraction to 1.2 percent. from 1.3 percent.

None of the roughly annual revisions from 1933-2004 are greater than 0.1 percent in either direction.

The quarterly revisions are another matter. They reach back to 1947, where the middle two quarters were revised down by a combined 1.0 points. Though they all largely offset, the size of individual quarterly revisions beginning in 1959 is pretty large. The absolute values of the revisions is almost 8 percent of the total of all values published in the past 60 years. It seems pretty stunning that we’d see that level of change in supposedly long-settled numbers after all this time.

Then there’s this with the annual revisions:

GDPrevsTo2005thru2009inJuly2018

Over a decade later, we’re learning that calendar 2005, 2006 and 2007 during the Bush 43 administration all had better growth than originally thought. Additionally, 2008 and 2009 weren’t as bad.

The quarterly breakdown of the revisions made during this period is also pretty telling:

GDPrevs4Q04thru4Q09inJuly2018

Commenting on each highlighted item:

  • The upward revision to 4Q04 means that the Bush 43 era turned in 5 quarters with growth as strong or stronger than the 4.1 percent 1Q18 growth reported today. During an 11-quarter stretch from 3Q03 to 1Q06, growth averaged 3.9 percent.
  • The 5.4 percent growth turned in during Q106 makes it the second Bush 43 quarter (along with 3Q03′s 7.0 percent) with growth greater than any quarter seen during the Obama era (its best, in Q214, was revised down today to 5.1 percent from 5.2 percent).
  • The press screamed about a recession being just around the corner in early 2007. The first-quarter revision to that year shows how ridiculous that was. (Aside: Especially considering the whining which came in during the Obama years about how first quarters were alleged being understated because of seasonal adjustment problems.
  • Though the middle quarters of 2007 were revised down, the fourth quarter was revised sharply upward to 2.5 percent. Yet the National Bureau of Economic Research still insists that the recession began in December 2007.
  • Revisions to the first two quarters of 2008 further weaken the NBER’s case that the recession was underway during that period. Simply put, how can you be in a recession during a quarter of 2.1 percent growth? The recession really didn’t begin until shortly before the third quarter began, which is exactly when I called it.
  • The change to 1Q09 shows that the recession Barack Obama inherited wasn’t as bad as the left has been insisting.
  • The improvement in recovery shown in the final two quarters of 2009 is nice to know, but the rest of the Obama era had a net 0.3-point decrement. The Obama era also now shows three quarters of contraction (Q311, at -0.1 percent, has been added to the two we already had in Q111 and Q114). Yet the press has consistently treated the Obama era as one of continuous but mediocre (their preferred term: “steady”) expansion. That’s horse manure.

Not shown above is how awful the second half of 2015 and all of 2016 were. Quarterly growth only averaged 1.65 percent during that period. The economy was weak going into the election, and the American people instinctively knew it.

UPDATE: Finally, I should also note that  1Q17 was revised up by 0.6 points, while Trump’s first three quarters in 2017 (Q2 through Q4) were revised down by a combined 1.1 points. I think a reasonable interpretation of this is that Trump’s election pumped more enthusiasm into the first-quarter economy than originally thought, but that enthusiasm only gets you so far. The new figures (3.0 percent, 2.8 percent, and 2.3 percent for Q2, Q3, and Q4) indicate that the economy needed the genuine juice of December’s tax cuts to stay on its feet and avoid a downturn.

Whether today’s 4.1 percent second-quarter 2018 growth figure is sustainable is obviously an open and crucial question. That said, imagine what the situation would be if the tax cuts hadn’t passed — and extending the sense of relief even further, if Hillary Clinton had been elected.

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5 Comments

  1. [...] Also see the separate post on prior-year revisions published later [...]

    Pingback by BizzyBlog — July 27, 2018 @ 12:39 pm

  2. If memory serves, the major quarterly changes can be attributed to applying the bias toward higher Q1/lower Q2-Q3 estimates introduced in 2015 to earlier years.

    Comment by steveegg — July 27, 2018 @ 5:05 pm

  3. Good point, but wow. Back to the 1950s and 1960s?

    Comment by Tom — July 27, 2018 @ 5:42 pm

  4. Given all the revisions I think it is a good time to compare the GDP increases over the Obama period to that of Trump.

    Overlay the CPI-U plus population increase as a subtraction to the GDP rate to demonstrate actual effect of the economy for the average person. Then everyone will understand how crappy Obama and his liberal flunkies screwed up so badly.

    Comment by dscott — July 27, 2018 @ 6:12 pm

  5. Population increase, yes. CPI-U no, because GDP is already stated in real terms.

    Comment by Tom — July 30, 2018 @ 7:34 am

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