This Week’s Terrible And Stale GDP Report
One of the problems with financial reporting is that even though it’s called ‘news’ the reports are often quite old. For example, the first estimate of GDP growth isn’t released until a month after the end of the period. So for example, the second quarter starts in April, ends in June, but doesn’t get reported until early July — and that July report isn’t actually a report of GDP, it’s the first of two estimates of what the actual report will be (which will be released almost two months later). This year it will be September 30th before we get the actual GDP number.
So roughly a month after the quarter ends, we get a first estimate of what happened during it. Roughly a month after that we get a second estimate. Roughly a month after that, we get the actual number. We just got the second estimate last week. This means that there is a lot of staleness in this number. Some of the economic activity being reported is from the beginning of April, almost five months ago.
It’s bad, but it’s an amalgam of data that is from five to two months out of date. How bad? Very bad, worst ever recorded.
That’s almost -33%. Ouch.
But what happens if we turn up the resolution on our microscope a little bit? It’s kind of low resolution to reduce three months of economic activity down to only one number. The word ‘analyze’ literally means to break or cut apart, so below we break the quarters down into months using a coincident indicator (meaning one which more closely coincides with the time period it is measuring) which is closer to real-time. In this case we use surveys of purchasing managers describing current conditions in their industry.
(Source: BEA, Institute for Supply Management, Q2 2020)
What we see above are three bar charts on top of each other. The first is GDP percent change. It shows a decline in output for the first quarter and a massive decline in the second quarter. But the second bar chart is a survey of service sector managers and the third line is a survey of manufacturing managers. They are called ‘high frequency’ statistics because they come out more frequently than GDP (every month rather than every third month). By overlaying these three sets of statistics we see that almost all of the contraction occurred in April and a bit of it in May. After that, conditions returned to normal. This means that the GDP data which just came out, which shows a terrible contraction, is largely about things which were happening four months ago. Interesting to know, and useful for historical analysis, but not really news in the sense that it’s not really new.
Originally published on Townhall Finance.
Jerry Bowyer is a Forbes contributor, contributing editor of AffluentInvestor.com, and Senior Fellow in Business Economics at The Center for Cultural Leadership.
Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.
Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for CNBC.com, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.
Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.
Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.
Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.
Jerry lives in Pennsylvania with his wife, Susan, and the youngest three of their seven children.