Excited About GDP Number? Wait for the Revisions
(Bloomberg Opinion) -- In May 2015, the Bureau of Economic Analysis announced that U.S. real gross domestic product had grown at just a 0.2 percent annual pace in the first quarter of that year. The economy had “slowed to a crawl,” the New York Times reported. The Heritage Foundation attributed this “dismal” performance to the “costly and counterproductive” policies of the Barack Obama administration.
The BEA has done some rethinking since then. According to the revised national income and products accounts numbers for past years included in today’s GDP release, the U.S. economy actually grew at a 3.3 percent annual clip in the first quarter of 2015. As a wise person once said, never mind!
This revised assessment has a lot to do with efforts to fix what many economists had criticized as a flawed seasonal-adjustment formula for first-quarter GDP, and it doesn’t change the overall picture of a slow economic recovery, which to be fair is what the Heritage Foundation was mainly complaining about. But it is interesting to see how the shape of the last recession and subsequent recovery has shifted as government statisticians have updated and revised their GDP numbers (Richard Miller of Bloomberg News examines a bunch of other changes revealed by the revision, including a boost to the saving rate).
That first-quarter 2015 number was the second-biggest miss in recent years. The biggest came during the final quarter of 2008, when the BEA understandably underestimated just how big an initial shock the economy had taken from the global financial crisis. It also underestimated the volatility of the economy in 2011 and 2012, which is interesting. In general, all this should be a warning to not make too much of first-cut GDP data.
The revisions and the new data for the second quarter (which, again, will be revised in the months and years to come) also paint a slightly different picture of business investment than the one I wrote about on Thursday. What had been a 7.1 percent year-over-year increase in private nonresidential fixed capital investment in the first quarter was revised down to 6.7 percent, and the second-quarter number came in at 6.7 percent, too, while the growth numbers for 2017 were revised upward. This seems to support the story that the business spending recovery probably has less to do with the corporate tax cuts that took effect in January than with the rebound of the domestic oil and gas industry after a big pullback in 2016.
Finally, as already noted, the GDP revisions did not change the overall picture of a plodding comeback from the Great Recession. Average annual real GDP growth since 2007 was upgraded to 1.5 percent from 1.4 percent, but annual growth hasn’t topped 3 percent since 2005. I wondered if the revisions might bump 2015’s GDP number up to 3 percent from 2.9 percent, but no, that stayed put. I also made my own growth calculations comparing GDP in the fourth quarter of each year with that of the fourth quarter in the previous year, which gives a better picture than the official numbers of how much the economy grew during that year. That delivered bigger changes — especially during the last recession — but still no 3 percent growth since 2005.
The 4.1 annualized GDP growth reported for this quarter signals that economic growth has a shot at topping 3 percent for the year. The Bloomberg Economics forecast is still for a 2.8 percent full-year growth rate, though. And who knows what that 4.1 percent will eventually end up being revised up or down to.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
©2018 Bloomberg L.P.