GDP is an economic measure that I rarely mention in this blog, as I believe that, for a variety of reasons, it is a complex indicator that has various computational, structural and theoretical limitations, and as such should be used with caution. However, given its prominence (or perhaps dominance) in policy making and near-ubiquity in economic discussions, it is a measure that deserves close monitoring and scrutiny.
Despite the amount of media attention and analysis GDP receives, I believe there are many aspects of the measure that lack (widespread) recognition. One of these aspects is that of the complete set – and cycle – of GDP revisions. The topic is discussed in various Bureau of Economic Analysis (BEA) publications, including the November 2011 “Concept and Methods of the U.S. National Income and Product Accounts” (pdf) on page 1-7 & 1-8. I find the subject of GDP revisions to be very important for a variety of reasons. GDP figures that are (in retrospect) significantly overstated are particularly worrisome, as they can depict more activity than is actually occurring. While the overstatement may be corrected over time, in the meantime the overstated GDP figure can adversely impact policy making and policy measurement, perhaps significantly. As well, such overstatement can cause overconfidence among various economic actors. The issue of GDP “tracking error” – to what extent, and duration – does currently published GDP figures vary from subsequent revisions – is something that should be recognized, especially given the higher degree of economic volatility being globally experienced in the last few years.
The BEA has just published a new table on its website (at the far bottom of the page under “Previously Published Estimates / Vintage History of Quarterly GDP…” )(automatic .xls download) that indicates a history of all GDP revisions since the first quarter of 2002. Although this information was previously available from the BEA, it was not aggregated and as such was (very) difficult to assemble. This new table was created upon my suggestion (in a letter to the BEA) and I believe that having such data readily available and easily accessible – from a (free) source that is reliable and will be maintained (updated) – will aid in the understanding and analysis of all of these GDP revisions as well as various related issues, such as the aforementioned “tracking error” issue.
I will likely further comment on this GDP revision issue upon analysis of this new revisions table. As well, I will likely have further comment on additional aspects of GDP reporting and calculation that I feel warrant (additional) recognition.
The Special Note summarizes my overall thoughts about our economic situation
SPX at 1404.42 as this post is written