Is GDP (via BEA) Measuring Growth or Inflation?

Thursday, August 28, 2008 | 12:00 PM

We noted earlier today that the Bureau of Economic Analysis reported revised Q2 GDP data at a better-than-expected annualized 3.3%.

As discussed in the comments, the measure of Inflation is crucial to getting an accurate read on GDP (or Durable Goods). Say  you live in a country that produced $100X worth of widgets in Year 1. In Year 2, it produced $110X worth of widgets. What was your GDP gains? 10% ? 0% ? Or something in between?

If your inflation data is ~2%, then you can conclude that the bulk if those widget sales was growth.

Back to the US 2008 Q2 data: Here lies the gravamen of the issue. Part of the reason the GDP number looked so good was because the GDP price index for the second quarter was marked at just 1.2. In other words, BEA subtracted from nominal GDP 1.2% in order to produce their version of "real" (inflation-adjusted) GDP.

Mike Panzner sends along the chart below, along with these comments:

"Call me a skeptic, but based on the accompanying graph of the GDP inflation figure and headline CPI (which most people already believe is lower than reality), there seems to be something of a disconnect between the two (which would imply, of course, that U.S. economic growth is a lot lower than reported)."

That is precisely the issue at hand. The GDP Price index is even lower than the already laughable CPI inflation index.

>

Click for ginormous chartGdppricecpi

Chart courtesy of Michael Panzner

>

Take growth. remove inflation ex inflation. What's left? I cannot even make up a term for the Frankesteinian mess that results.

But it sure as hell ain't Real GDP . . .

>


Previously:
Goldman Sachs’ Jan Hatzius: Don’t Be Fooled by Inflation (August 2008)
http://bigpicture.typepad.com/comments/2008/08/durable-goods-d.html

Q2 GDP = 3.3% (kinda)  (August 2008)
http://bigpicture.typepad.com/comments/2008/08/gdp-33.html

Thursday, August 28, 2008 | 12:00 PM | Permalink | Comments (45) | TrackBack (0)
de.li.cious add to de.li.cious | digg digg this! | technorati add to technorati | email email this post

bn-image

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef00e554915e6c8833

Listed below are links to weblogs that reference Is GDP (via BEA) Measuring Growth or Inflation?:

Comments

It looks like a similar divergence before three prior recessions, too.

Posted by: wally | Aug 28, 2008 12:07:26 PM

The comments to this entry are closed.



Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      

Archives

Complete Archives List

Blogroll

Blogroll

Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:


Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites

FeedBurner


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo

Disclaimer

Disclaimer

Odds & Ends

Site by Moxie Design Studios™

FeedBurner