2Q GDP Unchanged (someone please explain how)

I already made it clear that I have strong reservations about the revised 1st Quarter GDP (as well as other data).

Today, we see 2Q GDP revisions came in unchanged from the original 3.3%.

Question: We know what aspects get measured, and what they were upon the initial and revised release. Let’s compare :

· U.S. exports rose by 10.7%, instead of
the earlier reported 13.2% increase.  (Source: Department of Commerce.

· 2Q Corporate profits (after taxes) rose 5.3% to $975 billion — a
smaller gain than the previously reported 6.9% rise. (DoC).

· Businesses
inventories fell by $1.7 billion — far less than the originally
expected inventories raise of by $2.6 billion. (DoC).

· "Personal consumption was somewhat stronger due
to higher spending on utilities, like electricity." (WSJ)

All these factors imply that GDP slowed significantly more than originally expected. Yet its unchanged, according to the Department of Commerce.

So by what accounting sleight of hand can inflation go up more than expected, while profits, exports, and business inventories go up less than expected?

Inflation. Remember, GDP tries to measure actual output, not price increases. The secret must be buried somewhere in the inflation data. If prices edged higher in the quarter than originally
believed — while data from exports, inventories and profits came in below prior expectations — how can GDP remain unchanged? 

I suspect its in one of the PCE price gauges — I’m tracking someone down in the Commerce Department to see if that also excludes food and energy in this measure.

If so, that would explain the steady GDP data in the face of all these other negative factors . . .


UPDATE I: September 29, 2005 10:29 am
Commerce tells me that GDP is not calculated ex-food and energy. Further, each individual component has its own price deflator.

Again, the emphasis is on measuring output, not price.

This requires more digging . . .

UPDATE II: September 30, 2005 6:29 am

I contacted John Williams of Shadow Government Statistics, He notes that "The small increase in the deflator was matched almost by a small upward revision to the nominal numbers.  The lack of real growth change was a function of rounding and an artifact of the way the real numbers are put together.  Real GDP components haven’t totaled to the aggregate numbers in years, hence the "residual" factor.  Try dividing the nominal GDP by the published deflator and you don’t come within $5 billion of the real number."

Interesting stuff.


GDP Growth in 2nd Quarter Is Unrevised at 3.3%
DOW JONES NEWSWIRES, September 29, 2005 8:42 a.m.

News Release: Gross Domestic Product and Corporate Profit  http://www.bea.gov/bea/newsrelarchive/2005/gdp205f.htm

“Final” Estimates of GDP
THURSDAY, September 29, 2005

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. Tom Bozzo commented on Sep 29

    There is a PCE price index ex food and energy, which I’ve read the Fed follows with interest, but real PCE is deflated by a ‘total’ PCE price index. It’s perhaps worth noting that for the cooling season (since June 1 or thereabouts), portions of the upper Midwest have had roughly twice the cooling degree days as last year. That may explain both the specific citation of electric utility expenditures in the WSJ and, as it affects late Q2 (as well as Q3), the relatively late-arriving information. I suppose the start of GM’s fire sale could have affected the tail end of Q2 PCE as well, though I have no idea how long it would take to get that info in the GDP estimate.

  2. scorpio commented on Sep 29

    i’m sure the firestorm of news related to Republican leadership had absolutely nothing to do w the management of information about the health of the economy

  3. John Bott commented on Sep 29

    Per the NIPA tables, you got a pretty good pop out of motor vehicles and parts (7.3% apprx. annualized rate) and furniture and household equipment (5.71% apprx. annualized rate). Housing and medical care were also large, real contributors to the PCE account. PLUS, it looked like our net export position improved a bit.

  4. nate commented on Sep 29

    how much of housing and residential investment and activity is in the GDP number?

    china and india buying earth moving equipment for roads and infastructure. gold companies buying mining equipment for gold extraction given increase in gold price.

    (BR: New homes are in, existing homes have almost no impact)

  5. John Bott commented on Sep 29

    Housing’s about 10% of real GDP and residential is about 5.4%.

  6. spencer commented on Sep 29

    I have not looked at the data, but sometimes when you get a big change in import prices –oil — it can cause significant distortions because you are subtracting the big increase.

  7. spencer commented on Sep 29

    Just looked at the data and you find this.

    Change in the deflator for:

    Final sales of domestic product = 2.6%
    Final sales to domestic purchasers = 3.3%

    Deflator for imports = 9.9%

    Real GDP deflator = 2.6%.

    The 3.3% deflator of final sales to domestic purchasers
    is what you should really pay attention to.

  8. kharris commented on Sep 30

    In listing utility consumption as a suspicious factory, you seem to be implying that it should be a drag, rather than a boost, for real spending. That would be true only if there were a shift in tje revised tally of nominal utility consumption to reflect fewer units and higher prices. If there were an upward revision to utility consumption based even partly on an upward revision to units, that would be an add to GDP. In fact, there was a 0.3% upward revision to PCE (and housing investment) which offset downward revisions to inventories and net exports. The “residual factor” is an issue only if it got larger in the final revision. The weirdness of the data didn’t pop up in the final revision. It’s always there. Only if it got bigger does it cast doubt on the final revision.

  9. Barry Ritholtz commented on Sep 30

    Not real spending — real output.

    GDP measures production, and if prices paid move upwards, thats NOT an increase in output but rather an increase in prices.

    Unless we are suddenly consuming more electricity (Seasonally adj), its not a positive for GDP.

    It should be neutral at best.

  10. John Bott commented on Sep 30

    But doesn’t the Fed (or the nice folks at the BEA), consider utility supply to manufacturers as a sort of leading indicator? Joe Blow’s utility consumption should be fairly consistent (leave to go to work, lights off; home from work, lights on), but if I’m a large manufacturing facility my utility usage is a direct function of how busy I am.

  11. Barry Ritholtz commented on Sep 30

    too bad manufacturing is a small (and decreasing) industry in this country.

    If they rely on that, than they are pretty clueless . . .

Posted Under