So, this mornings GDP numbers from BEA ended up better than expected – down only 1% rather than the 1.5% drop forecast by the Dow Jones Newswires. On the other hand, the 1Q of 2009 was a much steeper decline of 6.4% (rather than the “final” estimate of 5.4% in 1Q 2009 and 6.3% in 4Q 2008).
Today’s numbers may be a good indicator — they are not necessarily the light at the end of the economic tunnel for many people. As the New York Times reports:
“We’re going from recession to recovery, but at least early on, it’s not going to feel like one,” said the chief economist at Moody’s Economy.com, Mark Zandi. “For economists, this is a seminal part in the business cycle, but for most Americans, it won’t mean much.”
What is remarkable to me is the size of the revisions. Today’s revisions essentially flip the story on economy over the winter. Before the data showed the biggest drop on 4Q 2008, with a smaller decline in 1Q 2009. Now the bigger drop is actually in 1Q 2009 with a smaller decline in 4Q 2008.
The revisions are even more striking when looking at the advanced and final estimate, compared with today’s revisions. Advanced estimate of 4Q 2008 GDP was -3.8%; final estimate was -6.3%. Today’s revised estimate is -5.4%. Advanced estimate of 1Q 2009 GDP was -6.1%; final estimate was -5.5%. Today’s revised estimate is -6.4%.
These revisions are due to ongoing work by the BEA to improve the numbers.
As a side note, the terminology about the various releases will be changed, to better reflect the continued refinements of the data. As BEA notes:
The three vintages of quarterly GDP estimates are renamed “advance” (no change); “second” (currently known as “preliminary”); and “third” (currently known as “final”).
So, treat the numbers with a bit of a grain of salt. Today’s data is subject to revision as well. The direction of the trend is good however. The real question is not so much the specifics of the data, but how to create a sustainable, non-bubble growth path for the economy.