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July 29, 2011

Recovery Summer II: First Quarter Growth Revised Down To 0.4%

I actually know this is a double-post, and that Drew mentioned it earlier.

But it's such a big thing I want it to have a headline.

Since I've been blogging I've noticed that all GDP estimates are biased towards the average. When the economy is growing, early estimates lowball the figure, and later estimates and final numbers put it higher; when the economy is faring poorly, early estimates highball the figure, and later estimates and final numbers put it lower.

Exception: When there is a huge growth spurt in one quarter, those estimates are usually overstated, highballed.

It's like there's some glitch in the algorithm that starts at a default rate of growth of 2.5%, and the algorithm resists deviations away from this.

Our first quarter growth rate was said to be 1.9%. Which is not good at all. Pretty damn bad, actually. But at least it's not 0%.

Well, it turns out it was pretty damn close to 0%.

Now, supposedly, the growth in Q2 was a pitiful 1.3%, which is awful, and is even lower than the 1.8% expectation by economists.

But how likely is it that 1.3% even holds up? Any bets it gets revised down to... less than zero?

First-quarter output was sharply revised down to a 0.4 percent pace from 1.9 percent.

Economists had expected the economy to expand at a 1.8 percent rate in the second quarter.

And 2010's fourth quarter was... yes, sharply revised down too, by almost a full percentage point.

In addition, fourth-quarter growth was revised down to a 2.3 percent pace from 3.1 percent, indicating that the economy had already started slowing before the high gasoline prices and supply chain disruptions from Japan hit.

The only thing here that comes close to helping Obama is the fact the recession turns out to have been worse than estimated, too:

Data released on Friday showed the 2007-2009 recession was much more severe than prior measures had found, with economic output declining a cumulative of 5.1 percent instead of 4.1 percent.


The economy needs to grow at a rate of 2.5 percent or better on a sustained basis to chip away at the nation's 9.2 percent unemployment rate.

But that doesn't really help him. For one thing, people are tired of excuses.

For another thing, a sharp downturn has usually been followed by a sharp upturn in the recovery phase -- the "V" shaped recovery people talk about (down sharply, then up sharply).

This is "L" shaped, down and then flat. It may in fact be a double-dip; we are on the verge of entering the Obama Recession. (BTW, Obama: Since you've proclaimed the recession ended two years ago, you really can't now claim this second recession is the same recession as the one you began with.)

So what's changed now?

Ironic "More Cowbell" picture from The People's Cube.

digg this
posted by Ace at 12:43 PM

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