Where are we, anyway?

August 29, 2013

Steve Avary notes that today’s estimate of second quarter GDP growth was 2.5%, up significantly from last month’s estimate of 1.7% (annual rates: quarterly growth multiplied by four). It would be embarrassing if it weren’t so common. The BEA says the new estimate “is based on more complete source data.” That’s true, but the bigger issue is that we never really know the current state of the economy, or even the state of the economy several months ago.

Kim Schoenholtz notes that sometimes we don’t even know whether we’re in a recession. From page 32 of the version 2.0 of Global Economy:

The initial report of third-quarter 1990 real GDP showed quarter-to-quarter annualized growth of 1.8%. Two
years later, the revised reading showed a decline of 1.6%. With the benefi t of hindsight, the NBER’s Business Cycle Dating Committee estimates that a mild recession began in July 1990, but data released in 1990 and 1991 didn’t show it. As a result, the Fed didn’t respond until the fourth quarter of 1990.

That’s one of the reasons we use multiple indicators. The employment report, for example, continues to show steady modest growth.

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