GDP Explained (Third Quarter 2010)
The Quarterly Data Mind Melt
Gross Domestic Product (GDP) is a huge data set managed by the Bureau of Economic Analysis (BEA). On a quarterly basis, I receive a number of emails announcing the latest data from the BEA. Most economists, including Dean Baker, give concise analyses of these data. But even with one page summaries, I wonder where these data come from and what exactly they are talking about, since the analysis is usually out of context. Furthermore, the data are national in scope and tell very little about what is going on in my state or the relationship between the national data and the state or regional economy.
Third Quarter 2010 Perspective
The third quarter briefing is an excellent example of how these data are developed over a period of time. In fact, the “advance” third quarter numbers are actually estimates, not final numbers. (Most skim over this fact.)
“Real gross domestic product – the output of goods and services produced by labor and property located in the United States – increased at an annual rate of 2.0 percent in the third quarter of 2010, (that is, from the second quarter to the third quarter), according to the ‘advance’ estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.7 percent.”
A technical note describes assumptions, data and how “advance” estimates are calculated. The method is described in detail, which is one of the truly great features of these data. This release goes on the state:
“The change in real private inventories added 1.44 percentage points to the third-quarter change in real GDP after adding 0.82 percentage point to the second-quarter change. Private businesses increased inventories $115.5 billion in the third quarter, following increases of $68.8 billion in the second quarter and $44.1 billion in the first.”
These statements allow the reader to delve deeper into the data set. But where did these data come from? The BEA has a number of interactive tables so you can explore the data in more detail. The $115.5 billion is found in Table 5.6.6B., “Change in Real Private Inventories by Industry, Chained Dollars” (PDF). This happens to be an important number because most economist, including me, believe inventory building is not sustainable. Therefore subtracting inventories 1.44 percent from the total growth, final GDP is a measly .6 percent, close to zero. Likely not what most are looking for.
You may have noted recent news stories of the private sector trying to move-up or expand Black Friday? That’s because retailers hope to decrease the temporary inventory bubble they have created.
National, State and Local Comparisons
If you are like me, national data is fine, but I like to know how they sync with the regional economy. State and local data lag behind national data by about two years (PDF). That is quite a long time. However, there are a number of ways an analyst can create an index comparing national and state level data, with reasonable assumptions, to produce a current trend for the regional economy. That would be particularly helpful here in South Carolina when discussing automobile inventories and the effect an increase in inventory has on both short- and long-term investment and employment.
