The BEA released today its comprehensive national account revisions, according to which real GDP grew at a 1.7% annual rate in 2013:Q2. Although this was above the 1.1% rate that many analysts were expecting, the new estimates also revise down the growth rates that were previously reported for 2012:Q4 and 2013:Q1, with the growth rate over these quarters now estimated to have been 0.1% and 1.1%, respectively, down from the 0.4% and 1.8% figures that had been reported last month.
The bare growth of the economy over 2012:Q4-2013:Q1 is the main reason that our Econbrowser Recession Indicator Index jumped up to 30.5%, a significant increase from the 9.2% figure that we released last quarter. This is one objective signal that the recent GDP numbers are even weaker than we’ve become accustomed to seeing since the economy began its disappointing recovery from the Great Recession in 2009:Q3. Note, however, that this does not mean the economy has entered recession territory. Our index would have to rise above 67% before we would issue such a declaration. Note also that in calculating the current value for the index we allow one quarter for data revision and trend recognition. Thus the latest value, although it uses today’s released GDP numbers, is actually an assessment of the state of the economy as of the end of 2013:Q1. However, our index is never revised, so that the numbers plotted in the graph below since 2005 are exactly the values as they were reported one quarter after each indicated historical date on Econbrowser.
In terms of the individual components of GDP, it’s clear that the ongoing fiscal drag is the biggest single factor in the recent sluggish growth. Lower government purchases of goods and services subtracted 1.3 percentage points from the 2012:Q4 growth rate and 0.8 percentage points from the 2013:Q1 growth rate. In other words, if you assumed a government-spending multiplier of 1, if real government purchases of goods and services had not fallen, U.S. real GDP would have grown at an average annual rate of 1.7% over 2012:Q4-2013:Q1 instead of the 0.6% actually observed. Lower government purchases of goods and services only subtracted 0.1 percentage points from the 2013:Q2 GDP growth rate, which is one reason the 2013:Q2 GDP growth rate was better than the preceding two quarters.
Note that 2013:Q2 also marks some significant changes in how GDP is calculated, the most important being that research and development spending is now counted as part of fixed investment and is adding a term in the calculation of GDP that was not counted previously. I explained the rationale for this change here. The changes have relatively little consequences for the GDP growth rate, which is all I’ve been talking about up to this point. The new “intellectual property products” category contributed 0.15 percentage points of the total 0.55 percentage-point contribution of nonresidential fixed investment to Q2 GDP growth (the height of the yellow bars in the graph above). The revision results in a slightly more significant change in the level of GDP. The level of nominal GDP for 2013:Q1 is now claimed to be 3.4% higher than it was reported to be as of the end of June. This would imply a very modest downward adjustment when one is updating magnitudes such as the ratio of debt to GDP.
In other words, we’re reporting the level of economic activity in a slightly more favorable way now, but it’s not making any significant difference for the reported real growth rate, which continues to disappoint.