Scarcely two days ago, Thomas A. McAdam confidently (if without the slightest evidence) asserted that the US economic statistics—not just the data but the very concepts they measure—are being deliberately “manipulated” by the government to make the economy’s performance look consistently better than it is. But then came today’s GDP report. This morning, to widespread surprise, the revised figure for first-quarter GDP growth came in at a dismal -2.9% annual rate. If the government is fudging the data, it’s doing a lousy job of it. Thomas says the first quarters overall GDP growth rate is horrendous, and hes right. Its the worst for a single quarter since the depths of the Great Recession. But a little drilling down reveals a more nuanced picture. Most of the main components of GDP did fairly well: personal consumption grew at 1.0%, fixed investment was down only a small fraction, and government output shrank modestly--this last Im sure Thomas finds especially upsetting. The harsh winter—remember the polar vortex?—probably explains much of the relative weakness in these components. Meanwhile, though, the two remaining components, inventory changes and exports, did perform horrendously. Indeed, the decline in these two alone almost exactly accounts for the total 2.9% decline (1.7 and 1.25 percentage points, respectively). What does this tell us about the state of the economy now and going forward? In the case of inventories, not much. Changes in inventories are notoriously noisy. Over the last 16 quarters, inventories have contributed more than 1.5 percentage points to the downside in reported GDP growth in 4 quarters, and that much or more to the upside in 3 quarters. Big, scary-looking dips tend to be followed by impressive surges, and vice versa. So you could think of inventories as sort of like a balky ketchup bottle: trickles tend to be followed by sudden splurts. Eventually the ketchup gets to the fries—a pause in the stream does not mean the bottle has gone empty. Put the inventory number aside, and reported 1st-quarter GDP growth improves hugely, from -2.9% to -1.2%. Exports, meanwhile, subtracted 1.25 percentage points from GDP growth. Again, this tells us little about the underlying strength of the US (underline “US”) economy. Although in the long run, export growth is an important indicator of US international competitiveness, any change in exports over a single quarter says more about the state of foreign economies than about ours. In the short run, how much foreigners can and are willing to spend on US goods and services depends on THEIR income, not ours. And we’re not the boss of them. At a global level, it’s the same with the US as a whole as with any private business: no matter how wonderful the goods we produce and put on the shelves, it’s up to the customer to decide to buy them. For some reason, foreign customers scaled back their buying big-time last quarter. Just as one swallow doesn’t make a spring, so the absence of one swallow does not mean winter is returning. Today’s economic data should be taken for no more and no less than what they are worth. But they should be taken for real, or at least as the best we have. I’m glad Thomas is taking today’s numbers for real, even if only because for now they confirm his prejudices. It will be interesting to see what Thomas has to say if the 2nd-quarter data come in robust. Will he go back to claiming the data are bogus? Or will he come up with a more creative dodge, maybe even a conspiracy theory? It won’t, for example, surprise me in the slightest if Thomas and his cronies on the right decide that the whole federal statistical apparatus deliberately made the 1st-quarter numbers look bad so that the 2nd-quarter numbers would see a bigger rebound—just in time for the midterm elections! And if they do, you can say you heard it here first. Here is todays official GDP report from the Bureau of Economic Analysis. My calculations use the numbers in tables 1 and 2. bea.gov/newsreleases/national/gdp/2014/pdf/gdp1q14_3rd.pdf
Posted on: Thu, 26 Jun 2014 05:01:02 +0000
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