US GDP Down Record 32.9 Percent
Earlier today, I noted the US Economy Declines by a Record 32.9 Percent.
The economy did not drop by a third. But that is what it looks like when you take quarterly numbers and annualize them.
That we can deal with, but the process of taking inaccurate estimates then annualizing the data and revising them multiple times, with enormous delays on top of it all serves no purpose.
Rick Davis at the Consumer Metrics Institute finished his column today with a rant on that idea. Let’s tune in.
Fatally Flawed Reporting
The BEA’s quarterly regimen and methodologies renders their data useless for policy making purposes. It is perhaps an academic treasure trove for PhD candidates, but the policy informing purpose that FDR envisioned for the agency in 1939 is simply no longer being met. In the 21st century — with millisecond transacting — there is no excuse for not replacing this exercise with a monthly series, published in the middle of the following month. The “consistency” mantra for maintaining the current series helps the PhD candidates, but it utterly fails the American people. Let the PhD candidates figure out how to reconcile a new monthly series to the historical quarterly data.
This sets the stage for an equally outrageous up-side quarterly report, to be published just days before the US 2020 election — although most voters by that time will be in a “who cares” mode.
There is not much more we can say. Things are bad, but reports like this don’t help any ongoing policy or response debates. And the next release will merely be more of the same. Luckily, the pandemic will probably keep most people from taking note of this mess of a report.
Grossly Distorted Procedures
In addition to Davis’ ideas the GDP has additional flaws with imputations and hedonics.
I once proposed changing the meaning of GDP from Gross Domestic Product to Grossly Distorted Procedures.
Three Examples
- The BEA takes the alleged value of “free checking accounts” and ads that to the total GDP. That the bank gets use of customer money so the checking accounts are not really “free”.
- Those who own their own home are alleged to pay rent on it. That adds to GDP.
- Government spending, no matter how useless, allegedly adds to GDP. I often wonder “Where’s the Product?”
Economists worry about the numbers, What can we do to get more of it? The answer is always spend more money with deficits and debt soaring as a result.
If government wants to boost GDP, why not add the value of free marital sex on the theory that if men were not married they would have to pay for it. And what about free massages? Why not, that’s what we do to “free” checking accounts?
Or, we can do what Davis suggests and just scrap the mess as fatally flawed.
Mish
As the accountant for the first state to do GAAP accounting for their financial and budget statements (I won’t name the State), Federal accounting is not GAAP, and it is not accounting.
Are you sure you do not want to name the state ColoradoAccountant?
🙂
By the which GAAP? When talking about accounting we should be clear as to the GAAP in question, whether it is the mark to market for the poors, or the mark to make-believe for our betters.
There CAN’T be a real depression/recession if iPhone sales are up big in the Americas.
Not even rich people buy that many iPhones and all sorts of wearables.
“The economy did not drop by a third. But that is what it looks like when you take quarterly numbers and annualize them”.
Basic math according to me:
If the economy shrinks by 9.5% every quarter compared to the same quarter the previous year, the annual GDP also shrinks by 9.5% (subject to relatively small corrections – inflation rates etc) compared to previous year’s; unless you have a strange model of accelerating shrinkage
Annualised they apply the rate of change in one quarter to a whole year. In other words (very roughly) down 10% one quarter from 100 to 90, the next quarter is not 90 also but down a further 10% . Not accelerating as such but just where the line points down to if you extend it to year end. Quite an unrealistic measure for most purposes.
So here are some annual gdp changes
AIREF forecast Spain: -20%
Spain at 80% or whatever annualised so I guess most people left :/
Here is another chart of false presentation from there courtesy Matthew Bennett
Yellow is daily virus cases as presented as headline, blue is the number after including others at later date.
I just reply the second part of this comment to you because the site has made changes, now “reply to story” window is gone so back to replying only via comments of others. Coincided with being asked again to accept cookie policy.
You’re absolutely correct. If every quarter declines 9.5% from the year-ago quarter, the annual decline is 9.5%. But you tell me–what is the annualized decline if GDP falls 9.5% from Q1 to Q2?
This is what it looks like to me, but I haven’t studied the equations they use, and don’t know where the projected blue line meets basis. Either way future gdp is a guess, but to headline estimate the whole next year based on a trend of change instead of the latest level reached is misleading. If we had weekly data for example, we could see if it was L or if it was accelerating or decelerating or if gdp had started to increase again even.
If the economy drops by say 10%, it’s unlikely it will stay flat in the next. The contraction would normally continue in a downward spiral. Unless you invent an artificial sweetener which you call FEDstortane.
“Homeowner expected relief from a mortgage deferral, instead got a bill for $4,700: ‘I about fell over’”
…
Forbearance FUBAR
Property destruction from the “peaceful protesters” in 27 major US cities should show up as a big plus on the next quarterly report.
you must mean peaceful as in the “peaceful” murders of ahmaud aubery, breonna taylor, george floyd and countless others which led to some equally “peaceful” protests and demonstrations
I never got banned. I started out with 1 g, then 2g’s, then 3g’s and couldn’t remember my password after clearing off my passwords accidentally when doing a routine hard drive cleaning… I just added a g rather than screw around trying to remember it again. There will be 5 g’s sometime in the future if I forget to check the box “Passwords” again.
Many mainstream economists get giddy when there is an opportunity to say “Fixing broken windows stimulates the economy.”
If the Federal government really wanted accurate economic numbers; then it would have implemented a better methodology a LONG time ago.
Yes!
Easier to obfuscate / massage as is.
YEARS ago the GAO famously announced the Pentagon could not be audited … since its books too screwed up.
What has changed? Nothing.
“mismanaged” bookkeeping allows fraud / black projects / lack of Congressional oversight / etc.
It makes complete sense … from the INSIDE.
There are no “accurate economic numbers.” The whole project of pretending there are, is a major reason why The West is now largely a bunch of failed states.
Bush left Obama a disasterous economy that was fixable,Obama left Trump an even bigger disaster economy that’s not fixable!Why? Because BO was given 8 years to effectively gut the economy and give all of it to WS and the banksters,Covid bs is just cover for the final payment/ balance transfer from Main Street to WS and the Banksters!
BS. For Republicans history started around 2008 while for Dems it’s 2016. The actuality is that the whole process started a long time ago. It takes a village to gut this country. Heck took the whole country to gut this country.
It ‘started’ in 1980
“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
― Ronald Reagan
Your second sentence is just ignorant. Obama left Trump with a GDP of 2.1% in 2017 and Trumps GDP BEFORE covid-19 was 2.2% in Feb 2020. These numbers come from the non-partisan CBO so please do your research before you embarrass yourself. I realize if you only watch fox news you might of been told Obama left Trump a bad economy but numbers do not lie.
Not only that but Bush left Obama with a 1.6 trillion dollar deficit for FY 2009 which Obama could not change since it was passed before he was president. Over his tenure in office he got that deficit back down to $587 billion in 2016, a third of Bush’s last deficit. And he managed this in the worst economy since the depression which is really quite remarkable. Especially when you consider he inherited two wars in different theaters.
Trump promptly got it back over a trillion and I clearly recall saying here last year that at his current rate of increase it would be over $1.25 trillion for FY 2020. When I miss the mark I really miss the goddamned mark eh? Trump’s actual deficit for FY 2020 is already $3,707 trillion with at least another trillion in stimulus yet to be implimented this FY, on top of the regular monthly shortfall of more than 100 billion per month. So we are looking at Trump’s final deficit in the realm of between $5 trillion and maybe as high as $7 trillion in a single freaking year. That is way more than Obama’s entire presidency.
Now that I think about it this makes all the sense in the world. How did the USA defeat and destroy the old Soviet Union? We bankrupted them via an arms race they could nott win, as well as locking them out of international markets and access to capital. So Colonel Putin was out of a job at the KGB and he blames the US for the fall of his beloved USSR. So it is not at all ironic that his way to get back at us is to bankrupt us, Trump is just doing what his boss has ordered him to do.
By the way, total US debt the day Trump took office = $19,947,304,555,212.49
As of yesterday = $26,505,315,299,968.98
And feel free to round that up to 26 trillion 505,315,299,969.00
“This sets the stage for an equally outrageous up-side quarterly report, to be published just days before the US 2020 election”
…
Yes.
BUT as a solid GDP becomes apparent, it will be harder for Congress to ram thru boat loads of more $$s … and extend forbearance / moratorium.
A Q2 number allows “anything” … a +20% GDP??
Pigs at the trough better get it NOW.
Equally -32.9 % is saying “If we carry on like this…” so better get back to work.
I guess it depends if you’re a three twenty niner or a ninety fiver, will probably be protests from one or the other, or both the way things are going.