2Q GDP Unchanged (someone please explain how)
Today, we see 2Q GDP revisions came in unchanged from the original 3.3%.
Question: We know what aspects get measured, and what they were upon the initial and revised release. Let's compare :
· U.S. exports rose by 10.7%, instead of the earlier reported 13.2% increase. (Source: Department of Commerce.
· 2Q Corporate profits (after taxes) rose 5.3% to $975 billion -- a smaller gain than the previously reported 6.9% rise. (DoC).
· Businesses inventories fell by $1.7 billion -- far less than the originally expected inventories raise of by $2.6 billion. (DoC).
· "Personal consumption was somewhat stronger due to higher spending on utilities, like electricity." (WSJ)
All these factors imply that GDP slowed significantly more than originally expected. Yet its unchanged, according to the Department of Commerce.
So by what accounting sleight of hand can inflation go up more than expected, while profits, exports, and business inventories go up less than expected?
Inflation. Remember, GDP tries to measure actual output, not price increases. The secret must be buried somewhere in the inflation data. If prices edged higher in the quarter than originally believed -- while data from exports, inventories and profits came in below prior expectations -- how can GDP remain unchanged?
I suspect its in one of the PCE price gauges -- I'm tracking someone down in the Commerce Department to see if that also excludes food and energy in this measure.
If so, that would explain the steady GDP data in the face of all these other negative factors . . .
UPDATE I: September 29, 2005 10:29 am
Commerce tells me that GDP is not calculated ex-food and energy. Further, each individual component has its own price deflator.
Again, the emphasis is on measuring output, not price.
This requires more digging . . .
UPDATE II: September 30, 2005 6:29 am
I contacted John Williams of Shadow Government Statistics, He notes that "The small increase in the deflator was matched almost by a small upward revision to the nominal numbers. The lack of real growth change was a function of rounding and an artifact of the way the real numbers are put together. Real GDP components haven't totaled to the aggregate numbers in years, hence the "residual" factor. Try dividing the nominal GDP by the published deflator and you don't come within $5 billion of the real number."
GDP Growth in 2nd Quarter Is Unrevised at 3.3%
By JEFF BATER and ELIZABETH PRICE
DOW JONES NEWSWIRES, September 29, 2005 8:42 a.m.
News Release: Gross Domestic Product and Corporate Profit http://www.bea.gov/bea/newsrelarchive/2005/gdp205f.htm
“Final” Estimates of GDP
THURSDAY, September 29, 2005
GDP GREW 3.3 PERCENT IN SECOND QUARTER; PROFITS ROSE
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There is a PCE price index ex food and energy, which I've read the Fed follows with interest, but real PCE is deflated by a 'total' PCE price index. It's perhaps worth noting that for the cooling season (since June 1 or thereabouts), portions of the upper Midwest have had roughly twice the cooling degree days as last year. That may explain both the specific citation of electric utility expenditures in the WSJ and, as it affects late Q2 (as well as Q3), the relatively late-arriving information. I suppose the start of GM's fire sale could have affected the tail end of Q2 PCE as well, though I have no idea how long it would take to get that info in the GDP estimate.
Posted by: Tom Bozzo | Sep 29, 2005 10:24:05 AM
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