Posted by: Michael Mandel on July 31
I’ve steadily maintained that the economic data overstated the strength of the economy, and today we had the first confirmation. The BEA issued its revision of the past three years of GDP statistics, and guess what? The fourth quarter of 2007 was revised down to negative growth (-0.2% from the previous 0.6%).
In my view, this process of downward revision of the stats for 2007 and 2008 will continue over the next several years. It takes that long for all the source data to catch up (for example, tax return data for 2008 is not available until mid 2009 or even later). By the time that the data revisions are done, it will be clear that GDP growth in the first half of 2008 was negative, despite what the stats say now.
In other words, I believe that the statistics will eventually show that we are in a recession now, no matter what the official data says now.
On the one hand, this is part of the BEA’s normal process of better and better estimates over time. We wouldn’t want them to wait until they had all the data in, which takes years.
On the other hand, most people—and most journalists—take the economic statistics as fact, and report them that way. In fact, they are approximations, estimates, and in some cases educated guesses.Much better than nothing—but not reality.
It’s time to beat the drums again for more funding for economic statistics…especially ones that accelerate the process of revision.
Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.