The gross domestic product of the United States is an important number, it’s a measure of the economic wealth of the polity. Thus the news that the estimate of how fast that GDP grew in the first quarter has been revised up to 1.2% is good news. However, it’s only marginally good news for that’s still a pretty slow rise. We should be doing rather better than that and every other number in the economy tells us that we are. We’re at near record levels of employment among the actively job seeking sector of the population, we’ve a decent enough technological revolution going on in the digital one and there’s just nothing else we can see lurking in the woodpile to make us think that growth shouldn’t be substantially better than this.
We thus, almost ineluctably, get led to the notion that we’re measuring something wrong here. That error could come in one of two forms, both of which I think–with varied strength to be sure–to be true.
The US economy grew faster than initially reported during the first quarter of the year, following an upward revision to preliminary estimates that could ease some concerns about a sluggish start to 2017.
The US economy grew by 1.2% in the first quarter, better than initially reported, according to the Commerce Department’s second estimate of GDP.
Note that there are actually four attempts at nailing this number down. The first is based on a great deal of forecasting. This second one, which revised it up to 1.2% from 0.7%, uses a lot more real data, the third one in a month’s time is almost all on actual data. Then in another year they’ll give us a final reading, the one they actually put into the history books, once they’ve been able to get the final real numbers from corporate accounts and the like.
Even that brief economic chill already appears to be a fading as the economy picks up speed in the spring. Economists polled by MarketWatch forecast a 3% growth in the second quarter and some estimates peg it even higher.
That could well be but that doesn’t explain that slow first quarter. Because economies just don’t bounce around that much quarter to quarter–we fix the numbers so that they don’t. Which is where our first possible cause of error is. If you look at GDP over the past few years you’ll see that there’s, either in the winter or spring quarter, a slow down. And that’s a problem. Because we deliberately adjust the GDP numbers to try and squeeze out seasonal effects. And thus if we see a repeating seasonal effect we should be thinking that our adjustments aren’t quite right. The economy has changed in some manner meaning that our old adjustments just don’t cut it any more. This has got to the point now that the statisticians are indeed scratching their pointy heads to work it out.
Many economists believe growth in the current April-June quarter will rebound sharply to above 3 percent, helped by stronger consumer spending that reflects solid employment gains and an unemployment rate that has fallen to a decade low of 4.4 percent. Moreover, part of the first quarter weakness reflected various temporary factors such as unusually warm winter weather.
There is that too. We include energy produced as part of production, obviously because it is production, but this means that when it’s warm and we have to consume less energy to stop ourselves shivering in the dark we’re recorded as getting richer more slowly. Which is an absurdity, certainly, but that’s just the way the numbers work.
However, we should also note that even despite such worries we’re really still pretty sure that we’re measuring the economy wrongly. That digital revolution really is happening and yet we cannot see it anywhere in the economic numbers. Which means, again, that we’ve a fault with our economic numbers. As Hal Varian, at Google, has pointed out GDP doesn’t deal well with free. But that’s rather what we’re getting with the internet, isn’t it? Free stuff, stuff that specifically doesn’t turn up in GDP. Facebook, WhatsApp, Google, they’re all producing things which hundreds of millions, billions even, of us are lapping up. It just doesn’t appear in GDP–incredibly, WhatsApp, where some billion get a good portion of their telecoms needs, turns up in GDP as a reduction in productivity and nowhere else. It’s an absurdity of course but that’s just the way the numbers work.
US GDP has been revised up from terribly weak to solidly weak. But we know very well there are calculation errors in there contributing to some to much of that.
Q1 US GDP Growth Revised Up To A Still Weak 1.2% – Forbes