US GDP: Can We Blame the Grinch for Yet Another Downward Revision?

Data for the Classroom from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ US GDP: Can We Blame the Grinch for Yet Another Downward Revision of Growth? Posted Dec. 23, 2011 Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics , from BVT Publishers.

US GDP Growth Q3 2011
Blame the Grinch who Stole Christmas? Third estimate US real GDP for Q3 2011 brought yet another downward revision
GDP now grew at an estimated 1.8% annual rate in Q3 2011, less than the 2.0% second estimate and less still than the 2.5% preliminary estimate reported in October
Although slowing, the July-September 2011 quarter was the 9 th consecutive quarter of growth since the end of the recession that lasted from Dec 2007 to Jun 2009
Posted Dec. 23, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Even with Downward Revision, Economy Still in Expansion
According to standard business cycle terminology, the recession phase of the business cycle is the downward movement of GDP from its previous peak
The recovery phase is the upward movement from the trough (low point) of the recession and continues until GDP again reaches its previous peak.
Once GDP moves above its previous peak, the expansion phase begins.
Although revised downward, Q3 GDP was still just a little (0.04%) above its pre-recession peak in Q4 2007. After a recovery of 2 years duration, the expansion phase has now begun.

Sources of US GDP Growth in Q3 2011
Consumption was revised downward, but still accounted for much of the growth in Q3
Investment was revised up to weakly positive compared with the negative number in last month’s second estimate
Federal government defense spending grew but was offset by continued decline of federal nondefense spending and state and local government spending
Exports grew even more strongly than previously reported, but they were offset by an upward revision of imports (a negative entry in the GDP accounts)
Posted Dec. 23, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Table shows the contribution of each sector to the 1.8% total GDP growth in Q3, 2011

Nominal GDP Growth Equals Trend, Gap Remains Large
The revised growth of nominal GDP (NGDP) was 3.9% in Q3.
NGDP growth consisted of 1.8% real growth and 2.1% inflation
An increasing number of economists focus on NGDP growth as a key policy target. Over the long run, NGDP growth of about 4.5% would allow real GDP to track its potential level with about 2% inflation.
The Q3 NGDP growth of 3.9% suggests that the gap between actual and potential GDP that opened during the recession continued to widen

US GDP: Can We Blame the Grinch for Yet Another Downward Revision?

by Ed Dolan

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US GDP: Can We Blame the Grinch for Yet Another Downward Revision? Presentation Transcript