Don't Count on That U.S. Economy Data Quite Yet

This morning's U.S. gross domestic product report was a disappointment, with inflation-adjusted growth for the second quarter coming in at 1.2 percent, well below the 2.5 percent median forecast of the economists surveyed by Bloomberg.1469798508827

I will leave to others the work of explaining what the various parts of the GDP report say about the economy. I'm interested more in the question of whether that 1.2 percent figure will bear any resemblance to what, in the fullness of time, the Commerce Department's Bureau of Economic Analysis will conclude that second-quarter 2016 GDP growth actually was.

GDP numbers get revised, again and again and again. Today's number was the "advance estimate" of second-quarter GDP. Next month we'll get the "preliminary estimate" and the month after that the "final estimate." Then there will be annual revisions, and eventually benchmark revisions that can go back decades. The GDP numbers from 2002, for example, have been changed nine times since the release of the initial estimates, most recently in 2014. Sometimes these revisions reflect newly available data, sometimes (mainly with the benchmark revisions) they reflect changing views about what should be counted and how.

Occasionally these revisions can be pretty dramatic. I have written before about the first quarter of 2008, for which the advance estimate was that GDP had grown 0.6 percent. According to the most recent revision, it actually shrank 2.7 percent. For the fourth quarter of that year, the GDP decline has increased to 8.2 percent in the latest revision from 3.8 percent in the advance estimate. But this was during the onset of the worst recession in 75 years. It's not surprising that an advance estimate based in part on extrapolation from the past would underestimate its severity.