Last Friday, the U.S. Bureau of Economic Analysis revised its real GDP data going back to the start of the 2007 recession. Our animated chart below, created with the Make a GIF online app, shows what changed:
We added the horizontal line indicating the peak of the previous period of economic expansion, which helps highlight the biggest change: instead of having reached and passed that previous peak in the fourth quarter of 2010, the new data indicates that inflation-adjusted GDP in the U.S. is stalling out well below that level.
So, instead of the U.S. economy generating $13,444.3 billion (in 2005 U.S. dollars) of economic activity in the first quarter of 2011, it is actually 1.6% smaller than previously thought, having generated $13,227.9 billion (in 2005 U.S. dollars).
This revision for the first quarter of 2011 marks the largest deviation from previously reported GDP data, coming in some $216.4 billion below the earlier recorded levels.
We also see that the U.S. economy performed far worse than previously thought at the depth of the recession in the fourth quarter of 2009 and the first quarter of 2010. The deviation from previously reported data for both quarters is respectively $205.5 billion and $201.1 billion less than the values that were presented by the BEA before the 30 July 2011 GDP revision.
But the first quarter's deviation of $216.4 billion from the previously reported level is extremely serious. Adding in the advance estimate for the level of GDP in the second quarter of 2011, here is what the one-quarter annualized GDP growth rate and the two-quarter annualized GDP growth rate looks like on our GDP Temperature Gauge charts, which projects the most recently recorded growth rates of GDP against a temperature spectrum indicating the typical levels of GDP recorded since 1980:
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Of these two charts, the less volatile Two-Quarter GDP Growth Rate Temperature Gauge, which considers the annualized growth rate of GDP over the preceding two quarters and which is useful in forecasting future GDP levels, has fallen into the purple "cold" range of our GDP temperature spectrum.
What this reading confirms is that for all practical purposes, the U.S. economy has entered into what might be considered at the very least to be a "microrecession" in the first half of 2011, which confirms what the U.S. stock market first signaled would happen back in June 2010.
It is still too early to tell if the current economic sluggishness will last long enough or become severe enough for the National Bureau of Economic Research to react and classify the period as a full-blown recession.
You can say a lot of things about the GDP revision, but at least it wasn't unexpected (for anyone paying attention, that is!)
Labels: gdp, recession forecast
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