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BEA Reports 1Q-2011 and “Great Recession” Far Worse Than We Were Previously Told
Startling revisions to the Nation’s GDP figures. source: http://www.consumerindexes.com Selected text from post of: 28 Jul 2011 10:00 PM PDT. Key ‘take away’ points from the post; Is the BEA data reliable given the magnitude of the revisions and the time it took to revise the data? David Gratke.
Link to full post: http://www.consumerindexes.com/2011-07-29_commentary.html
“Included in the BEA’s first (“Advance”) estimate of second quarter 2011 GDP were significant downward revisions to previously published data, some of it dating back to 2003. Astonishingly, the BEA even substantially cut their annualized GDP growth rate for the quarter that they “finalized” just 35 days ago — from an already disappointing 1.92% to only 0.36%, lopping over 81% off of the month-old published growth rate before the ink had completely dried on the “final” in their headline number. And as bad as the reduced 0.36% total annualized GDP growth was, the “Real Final Sales of Domestic Product” for the first quarter of 2011 was even lower, at a microscopic 0.04%.
And the revisions to the worst quarters of the “Great Recession” were even more depressing, with 4Q-2008 pushed down an additional 2.12% to an annualized “growth” rate of -8.90%. The first quarter of 2009 was similarly downgraded, dropping another 1.78% to a devilishly low -6.66% “growth” rate. And the cumulative decline from 4Q-2007 “peak” to 2Q-2009 “trough” in real GDP was revised downward nearly 50 basis points to -5.14%, now officially over halfway to the technical definition of a full fledged depression.
One of the consequences of the above revisions to history is that the BEA headline “Advance” estimate of second quarter GDP annualized growth rate (1.29%) is magically some 0.93% higher than the freshly re-minted growth rate for the first quarter. From a headline perspective, that makes for a far better report than the 0.63% drop from the previously published 1Q-2011 number — since otherwise the new 2Q-2011 numbers would be showing an ongoing weakening of the economy.
For the most part the “Advance” GDP report for the second quarter is positive only in comparison to newly re-worked numbers for the first quarter:
– The good news is that commercial investment appears to be improving and inventories are no longer growing at the previously unsustainable rate.
– But the bad news is that consumer spending on durable goods fell substantially during the quarter, dropping quarter-over-quarter by 4.4%.
– Some of the other favorable data, including foreign trade, are likely the result of one-time anomalies (e.g., tsunami suppressed imports).
– The “deflater” used to translate the nominal data into “real” data continues to suffer from credibility issues, and it may be the entire source of the reported growth.
The Real Problem
The greatest problems in the report, however, were the massive revisions to past history — including the very recent past. For both the first quarter of 2011 and the worst quarters of the “Great Recession” those revisions were substantial enough to raise questions about the reliability of any of the recently reported BEA data:
– Data published as recently as 35 days prior had growth rates slashed by over 80%.
– The worst quarter of the “Great Recession” was revised downward by over 2%, with the annualized “growth” rate now reported to be a horrific -8.9%. And the “peak” to “trough” decline in real GDP for the “Great Recession” is now recognized to be over 5%, halfway to the clinical definition of a full depression.
We have been concerned for some time about the timeliness of the BEA’s data, particularly given how much the nature and dynamics of the economy have changed since Wesley Mitchell initially developed the data collection methodologies in 1937. These past revisions, however, lead us to believe that the problems run far deeper — as demonstrated by a quarter that is now over 2 years old being just now revised downward by an additional 2%. This begs two simple questions:
– At what point in time can we trust any of the data contained in these reports?
– How can any of the current data be used to create meaningful Federal monetary or fiscal decisions?
We wonder what Mr. Bernanke thought when told that 80% of his “relatively slow recovery” during the first quarter had just vaporized …
Why the Bull Market is Toast, Published on Morningstar.com February 23, 2015 0 comments