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Better Than Expected Second Quarter Growth? Is the Post Kidding

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Friday, 02 August 2013 04:22

I somehow missed this Post article touting the 1.7 percent growth rate reported for the second quarter as better than expected. First it is incredible that the piece would leave readers with the impression that this strong growth, at one point telling readers:

"Some economists anticipated that the better-than-expected GDP report, if coupled with encouraging data in the job market, could encourage the Fed to pull back its support for the economy sooner."

The economy's rate of potential growth is generally estimated as being between 2.2-2.5 percent. This means that rather than making up some of the 6 percentage point gap between potential output and actual output, the gap increased in the second quarter. Is the Post trying to tell us that a growing output gap will move up the date at which the Fed withdraws support for the economy?

But wait, it gets worse. The GDP data released on Wednesday also included revisions to prior quarters' data. The revision to the prior three quarters' growth rate (Table 1A) were sharply downward lowering growth over this period by 1.3 percentage points or an average of 0.4 percent per quarter. With the revised data, growth over the last year has been just 1.4 percent. This is supposed to be a justification for withdrawing stimulus?

Comments (5)Add Comment
Why Journalists Forget the Output Gap
written by Last Mover, August 02, 2013 6:33

Why are you hitting yourself so hard on the head everyday with that stick?

Because everytime I do it, it feels better than expected when I stop.
...
written by Ryan, August 02, 2013 9:05
I'm unfamiliar with correct practice, but I also read accounts that compared this quarter's first estimate with revised estimates from last quarter. As those were revised down (and I'm guessing revisions are correlated over time to some extent), this seemed to bolster the better than expected line. Seemed odd to me.
...
written by skeptonomist, August 02, 2013 4:05
The sequester was predicted to have very serious effects by some. According to Wikipedia "The CBO estimated that sequestration would reduce 2013 economic growth by about 0.6 percentage points (from 2.0% to 1.4%...)." So ignoring the really dire predictions made by others, 1.6% is better than 1.4% - whoopee. (I don't know if the CBO gave quarter-by-quarter predictions).
http://www.linksus.net/my_prof..._11665.htm
written by http://www.linksus.net/my_profile/blog-view/blog_11665.htm, August 05, 2013 11:46
...
written by NWsteve, August 10, 2013 9:53
@ Last Mover:
ahhh...
so that's the trick----

i keep banging my head against a wall...with not nearly the same beneficial results...

tomorrow: the stick!!

thanks LM...

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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