Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Bloomberg Customers

Why is real GDP growing in a recession?

Posted by: Michael Mandel on December 02

As I noted yesterday, we have now been in recession for a year, but reported real GDP has actually risen. How can that be?

I’ve looked a bit deeper into this. One of the big problems, I think, is the measurement of the manufacturing sector. According to the BEA’s figures, production of goods in the U.S. has risen since the end of 2007 (for those of you keeping track at home, that’s Table 1.2.6. Real Gross Domestic Product by Major Type of Product, Chained Dollars).

Let’s repeat that…the GDP figures show that production of goods in the U.S. is up from the fourth quarter of 2007 to the third quarter of 2008. However, every other measure of manufacturing shows a very different picture. Manufacturing employment, output, and industrial production are all down sharply over the same stretch.

Which Number Doesn’t Fit? 
Measure source time period change
Manufacturing Output BLS 07IV-08III -2.5%
Manufacturing Employment BLS Dec07-Oct08 -3.6%
Manufacturing Production Fed Dec07-Oct08 -5.5%
Goods Production (from GDP) BEA 07IV-08III 0.5%

If we assume that real goods production is actually falling across this period, it pulls real GDP growth since the end of 2007 into the negative column as well.

Now, why should goods production be mismeasured? I think the answer is ‘phantom GDP’ (see here). But that’s for another post.

Added clarification:
Nominal goods produced = goods purchased by consumers + goods purchased by government + investment goods purchased by businesses + exported goods + inventory accumulation - imported goods

TrackBack URL for this entry:

Reader Comments


December 2, 2008 03:31 PM

The real goods number in the GDP accounts is a very different number than the industrial production number. For example, it includes real retail sales but a very large segment of real retail sales are of imported goods, not goods produced domestically.

The concept of using real goods GDP goes back a long time ago to an attempt to use goods GDP vs total or services gdp as a leading indicator. The idea is that goods are more volatile than total gdp so watching a volatile series vs a stable series could work as a leading indicator.

It is easy to call what they measure goods gdp, but it really is something quite different.

Mike Mandel

December 2, 2008 04:03 PM


You are right and wrong. You are right in the sense that real goods is very different than industrial production, because it is based on final sales, which can be imported goods.

However, remember that the real goods number is net of imports. That is, the value of imports is subtracted out. It has to be, because the three major types of products--goods, services, and structures--sum to GDP, which is net of imports.

So the real goods number does represent, in the broad sense, the value of domestic production of goods.

Mike Mandel

December 2, 2008 04:22 PM


I just added a clarification to the post, showing how the goods number in the GDP account subtracts out imported goods.


December 2, 2008 05:16 PM

I would be willing to bet that you are absolutely right about the phantom contribution to GDP. Most of that period saw dramatic increases in the cost of energy, a double whammy to the significant imported component of a great deal of domestically manufactured products as well as consumer goods in general. Any circumstantial inclusion of those imported elements would be magnified in the final GDP numbers.

Going forward, if lower energy prices and China's mercantilism (borrowing from commenter CompEng) prevail without a rapid return of consumer strength, then it seems that excessive shrinkage of the phantom element could result and that would tend to magnify stated GDP weakness. Ugh, if I believe what I just said, then the market, the Fed, and Treasury will overreact if the future GDP numbers look bad.


December 3, 2008 10:37 AM

Lao, that's a scary thought, but quite possible. On the other hand, the worst trade distortions simply don't hold up once the market comprehends them. Markets actually do work really well when information cost is low. Maybe a lot of the damage is done, but getting the measurements right is probably a great help to digging ourselves out of the hole.
So kudos to Mike and Businessweek on that.

L Moore

December 3, 2008 11:35 AM

So real GDP is part of the ponzi game of the last several years. It too is a bubble that needs deflating.


December 5, 2008 11:33 AM

A very interesting article about the sub-prime mess that was linked to the home portal page out my workplace:

It tells a personal story about the mess that CDOs were and made. My own take-away is that people are naturally tempted to lie to themselves and others to make themselves feel fully justified in doing whatever they want to do in the present. I think the cult of lassez-faire capitalism rewards those tendencies to our sorrow. We need the freedom of a system like capitalism, but no society without honor at the base of it (and punishment for the liars) can possibly be sustainable.

I suspect those lessons can reach far into what I've often heard termed "the real economy".


December 5, 2008 03:36 PM


That article was a great read, and you've summed it up pretty well. I wonder if Steve Eisman could figure out how much in the hole this mess will throw the economy.


December 5, 2008 10:17 PM

I think policy makers need to be extremely wary of current statistics. They cannot be trusted in this environment.


December 7, 2008 05:49 AM

Is it possible that the problems are not with the real economy? I would love some real economists to look at the theory that the fundamental problem is with derivatives.
My personal theory is that the $600T plus (notional value) derivatives market is being run by the same people that gave us the dot com boom (and all those wonderful IT companies with business models that a preschooler would have called nonsense). Derivatives are so complex that only people with significant training and high intelligence could hope to trade in them rationally. Is the market full of these people? Are there proper governance mechanisms to avoid abuses? Why is intense forensic examination of this area not seen as the most pressing public policy piority?

Joe Cushing

December 7, 2008 11:16 AM


If derivatives are such a problem, why were hedge funds down only 15% when everyone else was down 30%? (NPR Marketplace) With all their leverage, one would think they should be down 90% or even collapsed all together. The answer is, proper management of risk slowed their losses. Derivatives are a great risk management tool. Just because some people don't understand them doesn't mean we should curtail their use. People should be free to enter or not enter into any contract they want too.


December 7, 2008 03:37 PM

Derivatives seem to be a mechanism to manage risk by tranferring it. This makes reasonable sense if those you are tranferring it to understand the risk (eg tranferring risk to an insurance company staffed by skilled actuaries), but I think CDOs have amply demonstrated that many of the individuals and institutions ending up holding the risk don't understand what they are dealing with. On this basis the fact that hedge funds are doing better than the rest of the market supports, rather than works against my argument.


December 7, 2008 11:33 PM

Check this out: SAVE OUR ECONOMY!

This site explains a bold, unique, economic stimulus plan that will help ALL American families and businesses with a "One Year Mortgage Holiday" that is guaranteed to immediately jump start our economy and create millions of jobs.


December 9, 2008 04:17 AM


Your quote: "Derivatives seem to be a mechanism to manage risk by tranferring it"
That is exactly the key.
The risk was transferred but many peopel thought that it was somewhat magically eliminated by spreading it...big difference...


January 14, 2009 11:45 PM

How the US Manufacturing Industry Deals with Recession

Thank you for your interest. This blog is no longer active.



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.

BW Mall - Sponsored Links

Buy a link now!