GDP revisions — Who cares? Why bother?

Mitchell Hartman Sep 25, 2015
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GDP revisions — Who cares? Why bother?

Mitchell Hartman Sep 25, 2015
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Update: Gross domestic product grew 3.9 percent in the second quarter, according to the final revision of GDP issued by the Commerce Department’s Bureau of Economic Analysis on Friday. GDP grew in the first quarter by just 0.6 percent (as reported in the final revision). 

The original story appears below.

The third and final estimate of gross domestic product is reported on Friday for Q2 2015 by the U.S. Commerce Department’s Bureau of Economic Analysis.]] The first estimate for Q2, released in July, showed growth at 2.3 percent; the second estimate, released in August, revised growth upward to 3.7 percent.

That upward revision — by approximately 60 percent — is based on more complete reported data instead of initial “guesstimates,” says economist Nariman Behravesh at IHS. Investors tend to react to those sometimes-inaccurate initial guesstimates, rather than  the revisions that follow.

“It is definitely a problem,” says Behravesh. “Markets tend to be very short-term, to react instinctively to the data as they come out, even though they may be unreliable.”

Bahrevesh points out that while each subsequent revision makes the data more accurate, they also get progressively older, and thus less useful to business planners, investors and consumers.

Economist Jim O’Sullivan at High Frequency Economics offers some other economic statistics that he prefers, for their thoroughness and near-real-time read on contemporary conditions in the economy.

“The weekly jobless claims number is a very timely and generally reliable current indicator,” says O’Sullivan. Rather than being based on a sampling model, the jobless claims are calculated by compiling the previous week’s actual claims numbers submitted by each state, and then adjusted for seasonal variations. “When claims are going up it’s a bad sign,” says O’Sullivan. “When claims are going down, it’s a good sign.”

O’Sullivan also favors the ISM purchasing managers’ indicies for the manufacturing and services industries, and monthly auto sales.

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