In my post US GDP Revisions for 11 Years Coming Up: How Big Will They Be? I questioned the analysis of Breitbart article Obama Administration to Revise Total GDP Growth Down 2%.
It turns out the source for Breitbart 2% revision claim comes from analysis of state data by “Ironman” at Political Calculations.
“Ironman” pinged me with an update based on the fact the BEA will release its estimates in pieces, even though it makes little practical sense to do so.
Revised Political Calculations Estimate
Please consider An Unexpected Sneak Peek of a Massive Downward GDP Revision for the U.S.?
Update 16 June 2016: We were contacted by one of our readers who pays close attention to the BEA’s revisions of GDP. Apparently, the BEA’s plans for the revision of the national level GDP data will only cover the period from 2013-Q1 through 2016-Q1.
That’s really weird. It’s a lot harder for the BEA to disentangle the state level contributions by industry from their national level source data, but once it’s done, it means that they’ve also updated and revised the national level data per all the most recently available information. It just doesn’t make sense to sit on that much revised data and not update the national level figures to reflect the entire scope of all the revision work that has been done.
What that means is that there will very likely be an ongoing discrepancy between the state-level GDP and its rollup to the national level, and the BEA’s reported national level data. The two datasets should largely match, except for that contribution by U.S. contractors who support U.S. military operations overseas, which falls outside the economic activity that occurs within the 50 states and the District of Columbia as noted by the BEA, and which should only represent a very small fractional contribution to the national GDP figures above the aggregate rollup of state level GDP for the 50 states and Washington DC.
Update 18 June 2016, 6:20 PM EDT: We’ve been working behind the scenes with other competent econobloggers to sort out just how big the BEA’s upcoming national level GDP revision will be when it is finally posted in the last week of July 2016. In doing that, we’ve estimated just how big the contribution to national GDP is for federal military and civilian activity located overseas, based on the available pre-revision data we have to estimate that figure through 2015-Q3. The chart below shows that contribution and updates our findings:
We project that the maximum “likely” size of the upcoming revision for national GDP is -1.4%. We expect it will actually be less than that figure because the upcoming national GDP revision will only cover the period from 2013-Q1 through 2016-Q1, which will therefore not fully address the discrepancy that begins appearing after 2012-Q2.
It is also possible that the federal military and civilian activity located overseas will turn out to be significantly larger than what the BEA’s data has previously indicated, which would also narrow the gap between how national GDP is currently being reported and what the just-revised aggregate state GDP suggests it will turn out to be.
This is really pretty cool because this is the first time that this kind of predictive exercise has even been possible thanks to the BEA’s more timely reporting of its regional GDP data series. As our long time readers know, we’re very happy whenever we’re both on the cutting edge of doing new analysis and can share our work in progress in developing a brand new kind of analysis to get to the real story behind the numbers in the economy.
Revisions on Top of Revisions
We have revisions on top of revisions, all done piecemeal even though “It just doesn’t make sense to sit on that much revised data and not update the national level figures to reflect the entire scope of all the revision work that has been done.”
Well, there are reasons. What makes “practical” sense and what makes “political” sense are two different things.
For political purposes ahead of the election, it makes perfect sense to minimize the GDP downgrades.
It’s quite possible GDP goes up more in 2014 than it declines in 2015 due to construction spending.
My analysis focuses on construction spending revisions going back 11 years (see January 5, 2016 in Diving Into the Revisions: Construction Spending Revised Lower 7 Consecutive Months! 2015 GDP Will Decline vs. Estimates: By How Much?)
I have no confidence in any set of numbers, including my own, but I do have faith in one thing.
Addendum from “Ironman”
We’ve corrected the chart at our original post to fix a minor error, to correctly indicate that the date of the BEA’s revision of its 50 state + Washington DC GDP data is 14 June 2016 (not 2015).
Some additional back of the envelope numbers – the BEA’s July 2016 revision of the national level real GDP data will be about $54-55 billion (constant 2009 USD) smaller than what we’ve indicated the maximum “likely” revision to be. This discrepancy will be directly attributable to the BEA’s plans to only revise national level data from 2013-Q1 through 2016-Q1 in its annual July revision exercise.
Assuming that the contribution to GDP from overseas federal military and civilian government activities (mostly arising from U.S. contractors working to support the U.S. military’s operations in both Iraq and Afghanistan) is not itself revised from what the BEA’s pre-revision data indicates, that puts the “most likely” revision at -1.1% of the pre-July 2016 revision national real GDP level through 2015-Q4.
If the size of that “overseas” contribution to U.S. national GDP is adjusted upward, the overall revision will be smaller, and if that contribution is adjusted downward, the overall negative revision to national GDP will be larger. How much that will be revised and in which direction will depend upon the extent to which the BEA’s national revision may re-attribute GDP that was previously reported as being part of the 50 state + DC contribution to instead be included in the contribution of overseas federal military and civilian government activities to national GDP.
Perhaps the most interesting takeaway in our analysis is that 2012-Q3 now appears to have been a negative real economic growth quarter, which of course was followed by the nearly-zero growth quarter of 2012-Q4. Given the scope of the BEA’s planned national level revision, that is something that will not be evident in the data the BEA will be reporting.
Check out that last paragraph. It’s possible there was a small recession in 2012 Q3 – 2012 Q4.
Mike “Mish” Shedlock
It’s an election year. GDP will not be revised lower. Hey, Hillary needs all the help she can get. The bottom line is these data could be readily available in unadulterated form. This is the 21st century after all. All the calculations could be done a laptop computer. It’s not rocket science, but it is fodder for the political machine. In addition, GDP should not include any gov’t. economic activity since it doesn’t produce anything, but rather is a drain on the public sector (read real) economy. Just look around. Common sense dictates that all is not well in Oz. The economy is struggling. GDP should reflect this, but it doesn’t, because it’s a political construct. See “hedonic adjustment” for inflation calc. for example. Progressive rule book: If you don’t like the outcome, change the rules. FASB Rule 157 (mark to market) suspended, for example. George Orwell was on to something.
“During times of universal deceit, telling the truth becomes a revolutionary act.” – George Orwell
“WAR IS PEACE
FREEDOM IS SLAVERY
IGNORANCE IS STRENGTH.” – 1984 Ingsoc party slogan, Part 1, Chapter 1.
“The Party seeks power entirely for its own sake. We are not interested in the good of others; we are interested solely in power. . . . Power is not a means; it is an end . . . not power over things, but over men. . . . In our world there will be no emotions except fear, rage, triumph, and self-abasement. . . . There will be no loyalty, except loyalty toward the Party. There will be no love, except the love of Big Brother. . . . Always, at every moment, there will be the thrill of victory, the sensation of trampling on an enemy who is helpless. If you want a picture of the future, imagine a boot stamping on a human face forever.” – George Orwell, 1984
“There are three kinds of lies: lies, damned lies, and statistics.” – Mark Twain
We have centuries of written history as well as contemporaries warning of EVERYTHING that is happening, yet the vast majority continue to deny, to insist this is PROGRESS and it is different this time. Its not.
Like
“GDP should not include any gov’t. economic activity since it doesn’t produce anything, but rather is a drain on the public sector (read real) economy.”
Oops! That should be the public sector is a drain on the private sector, but I think most everyone knows this and you got my meaning.
So if world war III breaks out and to support the massive war effort the government buys and rations out all the county’s goods and services and funds all investments by that thinking the GDP of the country would be zero despite very full employment.
In a true free market economy the short answer is “yes”.
http://www.businessinsider.com/the-logical-outcome-of-keynesian-economics-is-a-spiral-of-decline-2012-2
The Logical Outcome Of Keynesian Economics Is A Spiral Of Decline
Ron Hera, Hera Research, LLC
Feb. 1, 2012, 2:56 PM
“Governments redistribute wealth and manipulate economic activity through taxes, subsidies, guarantees, regulations and so forth, but they do not produce new wealth. Government spending may be for good purposes, or at least stem from good intentions, but it unavoidably favors businesses with close ties to the government over those that are taxed but that do not benefit. Despite the theoretically higher moral purposes of lofty government undertakings, government programs that overlap the private sector divert economic resources to businesses that have the favor of politicians minus the cost of government, thus producing economic distortions and a net loss of wealth for society.”
“The Rahn curve is an economic theory proposing that there is an optimal level of government spending, 15% to 25% of gross domestic product (GDP), to maximize economic growth.”
“As the government grows larger, economic growth is curtailed and, eventually, the economy contracts, crushed under the burden of government.”
If anything, gov’t. (public sector) should be a negative multiplier on GDP. Where do you think gov’t. $ comes from? Ans. Taxes on the private sector. The private sector is (was) the (real) economy.
“For political purposes ahead of the election, it makes perfect sense to minimize the GDP downgrades.”
Absolutely, spot on. Government agencies are headed by political appointees. So, naturally Political Propaganda is the first and foremost purpose of economic numbers. This is a form of lying by deletion.
But they will argue that delay until after the conventions or elections is due to technical reasons. Those doing or disseminating this original private number crunching are performing a public service. I would expect it all to get released at a time when no one is paying attention.
May turn out we have been in recession for some time under the new statistics, and that the FED raised rates during an official recession (revised data). This can get as screwy as negative interest rates. The case for Central Planning by a Central Planning Politburo like the FED just got weaker.
It might be a little while after the Nov. elections before we see any additional HRC emails…
State Dept.: It Would Take 75 Years to Release Clinton Emails
http://www.newsmax.com/Newsfront/state-department-75-years/2016/06/06/id/732589/
“Lawyers for the State Department say in a court filing it would take 75 years to release the emails of Hillary Clinton’s staffers, CNN reports.”
http://www.cnn.com/2016/06/06/politics/clinton-emails-75-years/index.html?sr=twCNN060616clinton-emails-75-years1136PMVODtopPhoto&linkId=25277299
“This is the most transparent administration in history,” Obama said during a Google Plus “Fireside” Hangout. – POTUS Obama, Thursday, February 14th, 2013
http://thehill.com/blogs/blog-briefing-room/news/283335-obama-this-is-the-most-transparent-administration-in-history
Yeah, there could be a slight delay in GDP revisions as well… 🙂
If USA.gov copyrighted Hilary’s emails they could keep them secret for HRC’s life PLUS 75 years.
Does any of this GDP hocus pocus ripple thru to changes in inflation calculations? If the total of goods and services (GDP) is less but the amount of money spent remains the same then increased inflation makes up the difference? Yes,no,maybe?
Don’t even get me started on what a flawed, useless and misleading statistic GDP is.
The Government borrows money and then hires statisticians to measure its borrowing, and – VOILA! – this actually adds to GDP. Totally ridiculous.
Spot on Bam Man. Like another commenter stated, government spending should not be apart of the GDP as this money is either borrowed or already counted once when someone got paid and had to hand over their part to support government.
I was dreaming for a moment that honesty may actually come out. You know nothing will come out to harm Hillary or the Dems until the election is over just like the FBI investigation of Hillary.
Quick heads up – we’ve corrected the chart at our original post to fix a minor error, to correctly indicate that the date of the BEA’s revision of its 50 state + Washington DC GDP data is 14 June 2016 (not 2015).
Some additional back of the envelope numbers – the BEA’s July 2016 revision of the national level real GDP data will be about $54-55 billion (constant 2009 USD) smaller than what we’ve indicated the maximum “likely” revision to be. This discrepancy will be directly attributable to the BEA’s plans to only revise national level data from 2013-Q1 through 2016-Q1 in its annual July revision exercise.
Assuming that the contribution to GDP from overseas federal military and civilian government activities (mostly arising from U.S. contractors working to support the U.S. military’s operations in both Iraq and Afghanistan) is not itself revised from what the BEA’s pre-revision data indicates, that puts the “most likely” revision at -1.1% of the pre-July 2016 revision national real GDP level through 2015-Q4.
If the size of that “overseas” contribution to U.S. national GDP is adjusted upward, the overall revision will be smaller, and if that contribution is adjusted downward, the overall negative revision to national GDP will be larger. How much that will be revised and in which direction will depend upon the extent to which the BEA’s national revision may re-attribute GDP that was previously reported as being part of the 50 state + DC contribution to instead be included in the contribution of overseas federal military and civilian government activities to national GDP.
Perhaps the most interesting takeaway in our analysis is that 2012-Q3 now appears to have been a negative real economic growth quarter, which of course was followed by the nearly-zero growth quarter of 2012-Q4. Given the scope of the BEA’s planned national level revision, that is something that will not be evident in the data the BEA will be reporting.
Might we say then that the FED’s “data-driven” central planning of the economy should best be practiced retroactively or not be done at all?
A counter-argument could be made that since people tend to focus on the quarterly changes, there is a preference to revise GDP downward to what it truly was (rather than the inflated numbers generated each quarter), so that the current quarter shows an improvement relative to the past quarter.
We have usually seen such adjustments quarter-to-quarter as they put lipstick on the pig. Maybe they need to dig a little deeper to adjust the baseline lower.
It is not about Obama’s ‘legacy’ at this point, it is always about the current news cycle.
Then there’s the Fed, always looking for some ‘green shoots’ rationale to justify finally raising rates.
The reverse is going to happen with construction spending.
2014 will go up, 2015 down
For years most economic datas are nothing but smoke and mirrors, misdirecting misinformed taxpayers.
“For political purposes ahead of the election, it makes perfect sense to minimize the GDP downgrades.”
I don’t think that people are particularly fooled by politically motivated GDP numbers. People know there is something wrong with the economy, considering 8 years of emergency monetary policy.
What matters. To the powers that be.
It’s Obama’s last year.
It’s a Presidential election year.
Accuracy and completeness of data are not a priority at this time.
How many voters follow or care about the GDP? Or even know what it is? There will be no impact on voters at all. Even employment statistics matter little. What matters is to voters is not any statistic but rather their individual prospects for employment, confidence of getting another job if the lose their current one.
Rewriting history to dit the Pbama-Hitlary narrative.