In the past hour, the Bureau of Economic Analysis posted a second downward revision to the widely-trumpeted third quarter Gross Domestic Product numbers, this time to 2.2%. Additionally, per the fine print in this announcement, it has been determined that 1.45% of the 2.2% increase in GDP is being attributed to the Cash-for-Clunkers, or CARS, program, indicating that only .75% of the increase in GDP, at most, was due to non-government-supported activity. The conventional wisdom among economists is that we must have GDP growth of 2.5%-2.75% to enable job growth.
Here's Calculated Risk on today's GDP revision...
Q3 GDP Revised Down to 2.2%
by CalculatedRisk on 12/22/2009 08:28:00 AM
From the BEA:
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.2 percent in the third quarter of 2009 ... GDP was revised down from the advance estimated of 3.5% to the preliminary estimate of 2.8%, and now to 2.2%.
Personal consumption expenditures (PCE) were revised down to 2.8% from 2.9%.
And investment in nonresidential structures was revised down to -18.4% from -15.1% (aka falling off a cliff).
And, here's the Bureau of Economic Analysis' release...
GROSS DOMESTIC PRODUCT: THIRD QUARTER 2009 (THIRD ESTIMATE) CORPORATE PROFITS: THIRD QUARTER 2009 (REVISED ESTIMATE)
Bureau of Economic Analysis
EMBARGOED UNTIL RELEASE AT 8:30 A.M. EST, TUESDAY, DECEMBER 22, 2009
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.2 percent in the third quarter of 2009, (that is, from the second quarter to the third quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent.
The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2. 8 percent (see "Revisions" on page 3).
The increase in real GDP in the third quarter primarily reflected positive contributions from
personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and residential fixed investment that were partly offset by a negative contribution from nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
The upturn in real GDP in the third quarter primarily reflected upturns in PCE, in exports, in
private inventory investment, and in residential fixed investment and a smaller decrease in
nonresidential fixed investment that were partly offset by an upturn in imports, a downturn in state and local government spending, and a deceleration in federal government spending...
There's a direct correlation made by economists between the the GDP and job growth, which I mentioned above. It's known as Okun's Law. New Deal Democrat covered this subject as recently as yesterday, right here: "The recovery may not be "Jobless" any longer."
While some economic pundits swear by them, I'm not exactly the world's biggest fan when it comes to our own government's numbers, with statistics frequently being initially-overstated, of late, only to be much more quietly revised downward in subsequent months. I discussed this at length in this diary: "Breaking: BLS, Fed, BEA, et al 'Overstate Strength of Economy.' "
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Here's my commentary regarding mistakes in the calculation of the G.D.P. from that diary:
New York Times: "Economists Seek to Fix a Defect in Data That Overstates the Nation's Vigor."
Economists Seek to Fix a Defect in Data That Overstates the Nation's Vigor
By LOUIS UCHITELLE
Published Online: November 8, 2009 In Print: November 9, 2009
WASHINGTON -- A widening gap between data and reality is distorting the government's picture of the country's economic health, overstating growth and productivity in ways that could affect the political debate on issues like trade, wages and job creation.
The shortcomings of the data-gathering system came through loud and clear here Friday and Saturday at a first-of-its-kind gathering of economists from academia and government determined to come up with a more accurate statistical picture.
The findings in Uchitelle's story in today's Times were derived from similiar reports and related commentary from 80 "experts" attending a conference in our nation's capital sponsored by the Upjohn Institute and the National Academy of Public Administration. Among the representatives cited in the story as being in agreement that our government's statistics tended to paint too positive of a picture of reality were individuals from the Federal Reserve, the government's Bureau of Labor Statistics ("BLS"), and the Bureau of Economic Analysis ("BEA"), "...all big players in measuring economic performance."
The NY Times story focuses upon the manner by which we currently calculate our gross domestic product, however, the initial conclusions of the group indicate that these new understandings impact a wide cross-section of governmental economic statistics. (While many have been attributing a recently-announced, third-quarter upswing in our nation's gross domestic product of 3.5% solely to the current administration's economic stimulus programs, while also arguing that this event was a non-starter, others have been prematurely--IMHO--making statements tantamount to "mission accomplished," in terms of how our economy's "returning to normal.")
Specifically, as it was noted in the piece...
The fundamental shortcoming is in the way imports are accounted for. A carburetor bought for $50 in China as a component of an American-made car, for example, more often than not shows up in the statistics as if it were the American-made version valued at, say, $100. The failure to distinguish adequately between what is made in America and what is made abroad falsely inflates the gross domestic product, which sums up all value added within the country.
American workers lose their jobs when carburetors they once made are imported instead. The federal data notices the decline in employment but fails to revalue the carburetors or even pinpoint that they are foreign-made. Because it seems as if $100 carburetors are being produced but fewer workers are needed to do so, productivity falsely rises -- in the national statistics.
"We don't have the data collection structure to capture what is happening in a real time way, or what is being traded and how it is affecting workers," said Susan Houseman, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich., who has done pioneering research in the field. "We have no idea how to measure the occupations being offshored or what is being inshored."
Obviously, as the article notes, "The statistical distortions can be significant." It may also account--and this is, more than likely, an understatement, IMHO--for a potentially false, overstated reading in many measurements that have been presented to the public relating to wage inequality and the so-called "improved productivity" gap within our labor force, as manufacturing and services output dramatically (and supposedly) "increases" while overall available (jobs) employment declines at a record clip.
"What we are measuring as productivity gains may in fact be changes in trade," said William Alterman, assistant commissioner for international prices at the Bureau of Labor Statistics.
Again, put another way, it sheds a whole new light upon the entire concept of a jobless recovery.
The article also notes that the representatives of the federal agencies attending the conference--the entities responsible for compiling and managing our nation's current statistical reporting framework--claim that our government simply does not compile/collect the proper data necessary to accurately measure the impact that these imported goods and services may have, in terms of how they cause our government to arrive at distorted results on a variety of metrics, as well.
Much of the conference was devoted to an analysis of the gap between existing data and reality, and ways to close that gap.
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There has been ongoing, overly optimistic (IMHO) commentary regarding jobs growth into the first quarter of 2010; however, it ignores the annual Bureau of Labor Statistics' Benchmark Revision, which most project--based upon reports to date--will add roughly 800,000 additional lost jobs to figures to date. Most recently, I discussed that in this diary: "0.2% Jobless Rate Drop Belies Q1 '10 Negative Revision."
Yes, we have a long way to go before we're anywhere near out of the woods, IMHO. And, what we need is a massive re-focus upon jobs programs from our federal government, as noted by Nobel laureate economist Joseph Stiglitz, just yesterday: "'Significant' Chance the Economy Will Contract in 2010."