Latest GDP Revisions Carry Mixed Message for Elections

Sep 29, 2012Download as PPT, PDF0 likes1,687 views

The document summarizes an economics blog post analyzing the latest revision to US GDP growth figures for Q2 2012. It notes that real GDP growth was revised down to 1.3%, the slowest since 2011. While the economy continued its expansion, consumption growth was modest and government spending declines slowed. Profits remained high even as nominal GDP growth slowed. The data provides mixed messages for the upcoming presidential election by suggesting both economic weakness overall but strength in corporate profits.

Data for the Classroom from
Ed Dolan’s Econ Blog
http://dolanecon.blogspot.com/

Latest GDP Revision
Carries Mixed Message for
Election: Economy Weak
but Profits Strong
Posted Sept. 29, 2012

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.

Q2 Real GDP Growth Estimate Falls to 1.3 Percent

 The third estimate of US real GDP
growth for Q2 2012 showed output
increasing at an annual rate of just
1.3%
 Growth had previously been reported
at 1.7% in the second estimate
released at the end of August
 It was the slowest growth since Q3
2011

Posted Sept. 29, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Expansion Continues

 Q2 2012 was the 12th consecutive quarter
of GDP growth
 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.
 Q2 2012 GDP was solidly above pre-
recession peak, continuing the expansion
that the economy entered in Q3 2011

Posted Sept. 29, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Sources of US GDP Growth in Q2 2012

 Consumption contributed 1.03 percentage Table shows the contribution
of each sector to the 1.3% total
points to Q2 growth GDP growth in Q2 2012
 Investment contributed just .09 percentage
points to growth. Fixed investment was
strong but almost fully offset by negative
inventory investment
 Government spending continued its steady
decline, led by state and local government,
but the rate of decrease slowed compared
to -0.8 percentage points in Q1
 Net exports contributed 0.23 percentage
points. Export growth was strong; imports
also grew but not by as much

Posted Sept. 29, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Growth of NGDP Slows

 Nominal GDP (NGDP) growth slowed
sharply to 2.8% in Q2, revised down
from the 3.3% reported in the second
estimate
 An increasing number of economists
focus on NGDP growth as a key policy
target
 Long term NGDP growth of 4.5
percent (2 percent inflation and 2.5
percent real growth) would represent
good performance for the US
economy
 The slowing growth of NGDP is one of
the reasons the Fed began a new
program of quantitative easing in mid-
September
Posted Sept. 29, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Corporate Profits Remain Strong

 Corporate profits, both before and
after tax, were revised upward for
Q2 2012
 Both profit measures reached all-
time highs in the last quarter of
2011 and have remained above
year-earlier levels since then

Posted Sept. 29, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

A Mixed Message for the Election

 The Q2 GDP data carry a mixed
message for the presidential election:
 They reinforce the GOP argument that
the economy as a whole remains weak
despite Obama’s best efforts
 At the same time they reinforce the
Democratic narrative that corporations
and their shareholders are doing well
while the rest of the population
struggles
 The advance estimate of Q3 GDP will be
released on Oct 26, just before the
election, if anyone is still watching by
then

Posted Sept. 29, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

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Latest GDP Revisions Carry Mixed Message for Elections

1. Data for the Classroom from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ Latest GDP Revision Carries Mixed Message for Election: Economy Weak but Profits Strong Posted Sept. 29, 2012 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.

2. Q2 Real GDP Growth Estimate Falls to 1.3 Percent  The third estimate of US real GDP growth for Q2 2012 showed output increasing at an annual rate of just 1.3%  Growth had previously been reported at 1.7% in the second estimate released at the end of August  It was the slowest growth since Q3 2011 Posted Sept. 29, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

3. Expansion Continues  Q2 2012 was the 12th consecutive quarter of GDP growth  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.  Q2 2012 GDP was solidly above pre- recession peak, continuing the expansion that the economy entered in Q3 2011 Posted Sept. 29, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

4. Sources of US GDP Growth in Q2 2012  Consumption contributed 1.03 percentage Table shows the contribution of each sector to the 1.3% total points to Q2 growth GDP growth in Q2 2012  Investment contributed just .09 percentage points to growth. Fixed investment was strong but almost fully offset by negative inventory investment  Government spending continued its steady decline, led by state and local government, but the rate of decrease slowed compared to -0.8 percentage points in Q1  Net exports contributed 0.23 percentage points. Export growth was strong; imports also grew but not by as much Posted Sept. 29, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

5. Growth of NGDP Slows  Nominal GDP (NGDP) growth slowed sharply to 2.8% in Q2, revised down from the 3.3% reported in the second estimate  An increasing number of economists focus on NGDP growth as a key policy target  Long term NGDP growth of 4.5 percent (2 percent inflation and 2.5 percent real growth) would represent good performance for the US economy  The slowing growth of NGDP is one of the reasons the Fed began a new program of quantitative easing in mid- September Posted Sept. 29, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

6. Corporate Profits Remain Strong  Corporate profits, both before and after tax, were revised upward for Q2 2012  Both profit measures reached all- time highs in the last quarter of 2011 and have remained above year-earlier levels since then Posted Sept. 29, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

7. A Mixed Message for the Election  The Q2 GDP data carry a mixed message for the presidential election:  They reinforce the GOP argument that the economy as a whole remains weak despite Obama’s best efforts  At the same time they reinforce the Democratic narrative that corporations and their shareholders are doing well while the rest of the population struggles  The advance estimate of Q3 GDP will be released on Oct 26, just before the election, if anyone is still watching by then Posted Sept. 29, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Latest GDP Revisions Carry Mixed Message for Elections

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Latest GDP Revisions Carry Mixed Message for Elections