Second quarter of US contraction now confirmed

Today we received the official first guesstimate of US Q1 GDP from the BEA. In real, after-inflation terms, we were told that the economy grew for the second quarter in a row by a sub-par but conveniently positive .6% “annualized”.
Taking this number as prima facie good news, some markets cheered this evidence that the US had thus far escaped recession.
Not all of us are comforted by an optimistic spin on the data. Congratulations! It’s a Recession! was the take from many who have been discounting the government- fudged inflation numbers for some time now.
“..the goal of GDP should be to figure out how much the economy is expanding or contracting–not how much prices rose. By any honest measure of inflation–and not the 3.5% BEA price index for gross domestic purchases–both of the past two quarters would have been negative.”
How so?
Well there are many ways to “calculate” inflation and GDP numbers are quoted in real, after inflation terms. So if nominal GDP growth is estimated as 3.2 and you deduct a modest 2.6% GDP price deflator, you end up with a positive .6%.
Except that year over year inflation is presently running above 4% and much higher depending on the contortions and exclusions taken in counting it. See Different ways of measuring inflation.
If we take a modest 4% rate, then suddenly the GDP read drops from .6% to -.8%. If we look at more realistic estimates of inflation the negative real growth rate gets much worse.
Sorry, still no evidence of halcyon days here yet. Also we would not be surprised to see further downward adjustments on the next 2008 GDP estimate that will follow in the weeks ahead.

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One Response to Second quarter of US contraction now confirmed

  1. Anonymous says:

    Tks for this site Danielle, much appreciated.

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