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GDP Revisions Make 2nd Quarter Report Suspect

Posted by Larry Doyle on July 30, 2010 9:14 AM |

2nd quarter 2010 GDP was just released and registered growth of +2.4% versus consensus expectations of +2.6%. Slightly weaker than expected, and we can all move on perhaps? Not so fast.

1st quarter GDP was revised from its supposed final reading of +2.7% to a newly revised 3.7%!! So the economy was that much stronger in the 1st quarter than previously thought that the 2.4% 2nd quarter reading is actually not all that bad. Again, not so fast. Let’s continue to peel the onion a little further.  

Are economists and government analysts hoping we do not catch the fact that the 4th quarter 2009 GDP report of 5.6% was revised lower to 5%? The GDP report for all of 2009 was revised lower from -2.4% to -2.6%. The GDP report for all of 2008 was revised lower from a flat reading to -.4%.

How do we make sense on cents of all these numbers, and what do we think of the current report? The fact is when all the revisions are totaled, the economy was weaker then and is weaker now than what economists would have projected. Personal consumption specifically is slowing with downward revisions as well.

I am sure critics might say the report is not the contraction projected by Rick Davis of Consumer Metrics Institute, but I would caution people not to be quite so hasty. When so called final GDP reports from just one month prior are adjusted by a factor of close to 40% (the +2.7% to +3.7%), then we need to assume that future reports can and will be subject to similar fluctuations.

Are the powers that be playing with the books and numbers to hit the current targets? Do you trust we are receiving the real figures in a timely and accurate fashion?

I remain suspect. The fact is the economy continues to have ‘walking pneumonia’ and the consumer specifically has the worst case.


  • Earl

    Burden shifting to consumers, WSJ reports,

    In the second quarter, the change in private inventories added slightly more than one percentage point to the 2.4% increase in gross domestic product from the first quarter, measured at a seasonally adjusted annual rate, the Commerce Department said Friday.

    That is a big change from the first quarter, when inventory building contributed 2.6 percentage points to GDP growth of 3.7%, and the fourth quarter of last year, when it contributed 2.8 percentage points to GDP growth of 5%.

    The fading inventory effect means growth now largely depends on how much people are willing to spend on finished goods—not the calculus at companies about how much they need to build stocks to meet future demand.

  • Mike

    Pfff, OK. Seeing as revisions are a guarantee at this point, I will not be surprised to see that rick davis ends up being right when they ‘revise’ 2nd quarter GDP in 90 days.

    • Alex

      You’re joking right? In order for Davis to be right they’d have to adjust the figures DOWN 4 percent. There’s a better chance that pigs fly over the Atlantic tomorrow.

      The first Q figures were recently adjusted UP 1.2%. If something similar occurs with the 2nd Q numbers, then Davis would be off by 5.2%!

      A monkey with a dart board could do better. And I hate to say I told you so, but earlier this week, I told you so.

  • Shan

    Just for me, isn’t CMI based on consumer spending only? If so, if you’d remove the inventory pile up from the list, and also the ~28% ‘new home construction’ (where? In Antarctica?) figures, where would that leave us? Close to -2%?

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