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?