The Recession : About 50% Worse than We Thought

Posted by: Michael Mandel on July 31

The BEA just came out with its revised GDP numbers for the past few years. And not really a surprise, the recession now looks a lot worse than the data previously showed. From the fourth quarter of 2007, when the recession officially started, to the first quarter of 2009, the previous data shows real GDP declining by 2.2%, compared to a 3.5% drop in the new numbers. So the recession, measured by the drop in real GDP, is about 50% worse than we thought.

Here’s a chart of real GDP, indexed to the fourth quarter of 2007.
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Reader Comments

cm

July 31, 2009 10:20 AM

The rationale for the adjustment of the estimate would be interesting, if one is provided, i.e. what "new data" led to a lower number.

MC

July 31, 2009 12:15 PM

Not a surprise to me! You must adjust ALL of the government numbers by at least 30 to 50% if you want to arrive at the real figures. For example, current unemployment is around 14-16% not the 8.5
to 9.5% being reported.

jsh02_nova

July 31, 2009 12:23 PM

Does this mean that Gov't spending is now 25% - 26% percent of GDP (above the WWII spending)?

Rod

July 31, 2009 12:57 PM

Watch as Keynesian economics roars us back from one of the greatest recessions in U.S. history with a great President at the helm.

Harish

July 31, 2009 01:05 PM

I'm not sure Q2's GDP number is better than expected. If you look at absolute GDP number for this quarter, it is probably worse than what was expected.
Lets say in Q4 last year, the absolute GDP number was 100. Initial Q1 GDP was reported at 94.5 (5.5% decline). For this quarter, economist were expecting the Q2 number to decline by 1.5%, which comes at 93.0825. Some economist were expecting the number to drop by 1.7%, which comes at 92.8935. Now, lets look at the Q2 number. It actually came at 92.664 (lower than expectation !), if you take into account that Q1 number was revised to 6.4% decline. Look at the math below:
100 - 5.5% = 94.5 - 1.5% = 93.0825
100 - 5.5% = 94.5 - 1.7% = 92.8935
100 - 6.4% = 93.6 - 1% = 92.664

MDY

July 31, 2009 03:12 PM

TO MC,

I have been saying that unemployment was in your range of 14%-16% all along. Factor in the number of people who have dropped off the unemployment payrolls (because they didn't get a job), plus illegal aliens unemployed, plus the number of people incarcerated...you get to those high teens of real unemployment easily...

Dave H.

July 31, 2009 03:13 PM

It may take GDP growth to get employment moving in a favorable direction. The economy is shrinking. Not a cause for celebration. The recession is getting worse at a slower rate, not a sign of a turnaround. May durable goods orders went up, June durable goods orders dropped 2.5% surprising analysts who did not expect such a large drop.

Strategery

July 31, 2009 04:36 PM

Anyone who is not part of the elite class already knows how bad the recession is. The data finally reflects what most of us already knew.

I think the chances of a "double dip" are more than 50%. Too much of the "real GDP" is phantom wealth, like the numbers game that the banks and Wall Street play. We are still losing industries to other countries, government spending that has propped up the economy will eventually end, interest rates will rise to control inflation and because of government deficits, and taxes will rise to pay for government spending.

Mike

July 31, 2009 08:19 PM

Rod. That's the perfect name for you indeed. Its like your parents knew what you would grow up to become. Your first name isn't Richard perchance?

Blue Dog

July 31, 2009 10:03 PM

Mike - Rod's first name is Nim.

Kartik

July 31, 2009 10:09 PM

I think there will be a double-dip in 2010-11. The second recession will be much shorter and shallower than the first, however.

Sort of like 1980-82, which was one big 3-year recession, called a double-dip due to the most minimal of recoveries in between. The 2nd part was much more severe than the first, in that case.

The UE rate will not get below 5% again until 2013 at the earliest.

Kartik

July 31, 2009 10:11 PM

The cause of the smaller double-dip recession in 2010-11 will be the fact that home prices still have one leg down to go, AND that income taxes are set to rise after Dec. 31, 2010.

The recovery now is only due to a 0% FF rate. As the FF rate is raised back up to fight inflation, and as income taxes rise, another recession in 2010-11 is virtually guaranteed.

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

 

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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.

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