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Make Me Smart with Kai and Molly
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Why you shouldn’t get all stirred up about today’s GDP number

Paddy Hirsch Jul 30, 2014
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Does that GDP number look good to you? Are you feeling all warm and excited about the state of the economy?

Well, you can stop that right now.

Why? ‘Cause that number can’t be trusted, as Jeffrey Cleveland, Chief Economist at Payden & Rygel expained to Mark Garrison on the Marketplace Morning Report today:

Mark Garrison: So the morning’s numbers show strong 4 percent growth in the second quarter. Also, the previous quarter wasn’t as bad as originally thought. What’s your key takeaway from this report?

Jeffrey Cleveland: I think you should maybe take an average of the first half of the year, and then you see growth as maybe about 1 percent, 2 percent, somewhere in that range.  I think that’s the real, underlying trend of U.S. growth. I don’t think investors should get too excited by any one particular quarterly number.

Garrison: And when these numbers come out, we try to remind people that this is an estimate right now, this 4 percent growth number, just the first crack really. What’s the danger of reading too much into this?

Cleveland: Yeah, the data is always a tradeoff between the timeliness and the accuracy. About half or a little more than half of the data is subject to heavy revisions, Mark. We don’t have complete data for inventories, for trade, for some of the spending on services that consumers put out there, so this could change by a large degree. If you remember back to Q1, the initial reading that we received was just marginally positive growth rate, and that was subsequently revised away and now we’re down 2 percent for the first quarter.

That’s it. The number we got today is an estimate. The people who crunch the GDP number only have about half of the data they need to judge the growth rate of the economy. The number will be revised, and then revised AGAIN! The difference between the first estimate and the final figure could be as much as 2 PERCENT!

Pinch o’ salt, people. Pinch o’ salt!

 

 

 

 

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