Monday , September 21 2020
Home / EconoSpeak / How To Measure Quarterly Changes In GDP Can Make A Big Difference

How To Measure Quarterly Changes In GDP Can Make A Big Difference

Summary:
We have had dramatic headlines and commentary in recent days since the BEA issued its initial estimate of quarterly changes in GDP, which they do not officially measure on an shorter time period. This is a measure of the average GDP in one quarter compared to the average GDP in the next quarter.  Looking at Q1 of this year and Q2 of this year, they reported the largest quarterly decline ever recorded, -32.9% on an annualized rate, about -9.5% on a quarterly rate. This is a sharper decline than seen either for any pair of quarters in the Great Depression or the immediate post-WW II demobilization, much less such later events as the Great Recession of 2007-09.  Of course this generated big headlines and much breathless commentary, including quite a few commentators who did not get it that

Topics:
[email protected] considers the following as important:

This could be interesting, too:

Lars Syll writes Expected utility theory — an ex-parrot

Mike Norman writes TikTok, Sing a Song of Sixpence, A pocket Full of Rye, Four and Twenty Blackbirds Baked in an American Pie — M. K. Bhadrakumar

Mike Norman writes Moon of Alabama — NYT First Reinforces, Then Silently Debunks Its False Claims About Russia’s Covid-19 Vaccine

Mike Norman writes The Fiscal Folk Theorem — Brian Romanchuk

We have had dramatic headlines and commentary in recent days since the BEA issued its initial estimate of quarterly changes in GDP, which they do not officially measure on an shorter time period. This is a measure of the average GDP in one quarter compared to the average GDP in the next quarter.  Looking at Q1 of this year and Q2 of this year, they reported the largest quarterly decline ever recorded, -32.9% on an annualized rate, about -9.5% on a quarterly rate. This is a sharper decline than seen either for any pair of quarters in the Great Depression or the immediate post-WW II demobilization, much less such later events as the Great Recession of 2007-09.  Of course this generated big headlines and much breathless commentary, including quite a few commentators who did not get it that the -32.9% number was the annualized rate rather than the quarterly rate, so we had quite a few of them foolishly talking about how the economy had "fallen by a third."  Yikes.

As I have noted in previous posts here, the economy has been doing a lot better than a lot of reporting and forecasts have let on, even as it is certainly slowing down now.  But if rather than looking at quarterly averages, which are heavily influenced by the fact that the economy did not "fall off a cliff" until mid-March, about 5/6 of the way through Q1 so that most of Q1 was at the high pre-fall level, one looks at where the economy was at the end of Q1 and compare it to where it was at the end of Q2, one gets a dramatically different story.  Over on Econbrowser Menzie Chinn has produced a figure from IHS Markit that estimates these shorter period changes. According to them the US GDP at the end of March (end of Q1) was at about $17.6 trillion annual amount while at the end of June it was at about $18.0 trillion, about 2.2% higher on a quarterly rate, which is about 9% higher on an annualized rate.  Needless to say, there is a dramatic contrast between -32.9% and +9.0%, but I have seen zero media commentary on this.

Indeed, growth has continued through July, although probably at a slower rate than in June, with a slower growth of retail sales of only 3.2% suggesting it has indeed slowed down quite a bit.  But in fact the economy has been growing for probably more than three months, something although "worst ever" stories seem to have ignored, and indeed the figure Menzie showed that went through May and June but not July sure looked a lot like a V, if just a bit flatter going up than down.

For anybody for whom this is just unacceptable to think about and you must think all is bad, well, unemployment remains high and indeed apparently the unemployed numbers have started going up again.  The economy may be ahead of where it was at the end of March, but it is still pretty far from where it was in February, and it is definitely slowing down, with its fate clearly closely tied to what happens with the coronavirus pandemic, which is not easily forecast..

Barkley Rosser

rosserjb@jmu.edu
I remember how loud it was. I was a young Economics undergraduate, and most professors didn’t really slam points home the way Dr. Rosser did. He would bang on the table and throw things around the classroom. Not for the faint of heart, but he definitely kept my attention and made me smile. It is hard to not smile around J. Barkley Rosser, especially when he gets going on economic theory. The passion comes through and encourages you to come along with it in a truly contagious way. After meeting him, it is as if you can just tell that anybody who knows that much and has that much to say deserves your attention.

Leave a Reply

Your email address will not be published. Required fields are marked *