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US Q2 GDP Growth Of 3.9 % Shows That We’re Measuring It Wrong

September 28, 2015

This is an interesting article by Tim Worstall. I have reached out to Tim to see if he will join us on the show to further discuss some of his ideas.

We do a lot of complaining about government numbers but Tim actually dove into some of the aspects of the recent GDP reports to outline his concerns. Have a read and let us know what you all think.

Click here to visit the original posting page over at Forbes.

The revision of the second quarter’s GDP growth just came out and it was a pleasant surprise, being upgraded to 3.9%. However, it’s almost certainly true that growth wasn’t in fact that high in that quarter, not unless something really, really, strange is happening to the economy. Rather, what’s much more likely, is that we’ve got something wrong about how we measure what GDP is. Now, you might think that’s unlikely: GDP is a fairly important number after all. And we can trust the government to get these sort of things right, yes? They have got enough people with clipboards, pencils and the myriad of forms they insist we all fall in, haven’t they? And the answer to that is, well, really, no. It’s surprising in fact quite how ropey most of the economic statistics are. Just as one example, the employment numbers come in a range of plus or minus 100,000 either side. Given that those numbers are usually in the 100,000 to 250,000 range, we’re often really saying that the economy added no jobs or 200k, rather than the 100k we all look at and nod sagely about. So it is with GDP: it’s a guess, a good guess but a guess nonetheless, of the amount of value added by 320 million people.

Here’s the actual result:

The U.S. economy remains strapped on a roller-coaster ride, weathering the same highs and lows that marked its performance in recent years: A sharp slowdown early in the year, followed by a surge and then a glide through year’s end.

Smoothing over the volatility reveals an economy that is expanding moderately despite turmoil overseas, a strong dollar and low oil prices.

The nation’s gross domestic product, the broadest measure of economic output, revved up to a 3.9% seasonally adjusted annual growth rate in the second quarter, according to a revised reading from the Commerce Department on Friday, after its paltry 0.6% pace in the first quarter. That suggests the economy grew at about a 2.3% pace in the first half of the year, a slightly higher pace than in the first half last year.

Now, we can point to things that explain that first quarter slowdown: the West Coast ports thing for example. But if we start seeing the same behaviour over a series of years then our thoughts really ought to be turning to our statistical methods, not to the underlying economy. And we are reaching that point I think. We’ve had first quarter slowdowns for several years now.

The explanation is that the numbers we are shown are not in fact the numbers which the statistical offices collect. Not at all: for we all know that there’s huge seasonal variations. There’s rather more ice cream sellers and life guards around in the summer than there are in the winter: the other way around with ski lift operators. And there’s at least 100,000 people who are hired to do holiday deliveries then get laid off again Jan 1. We really don’t want to be tracking these seasonal variations and thinking that they’re telling us anything useful about the underlying state of the economy. So, instead, we track them and then try to pull them out of the numbers that tell us that underlying performance. We apply seasonal adjustments to the GDP (and most other economic) numbers that is.

And my best bet is that the economy has changed a little bit in some manner. Not that growth slams to a halt every first quarter then we have boom times in the spring. Rather, that there’s some seasonal change, a new one, going on that we’re not properly adjusting for. Quite what it is I’m unable to tell you: and Census and Commerce will have pointy heads sucking the end of their pencils trying to work it out. As soon as they know they’ll tell us.

There’s two important points to come out of this, one more important than the other. The less important one being that I wouldn’t take any one quarter’s GDP numbers very seriously just at the moment. There’s, to my mind at least, something obviously wrong with the calculation system, something that needs to be sorted out. The more important one is that this all shows why the detailed planning of an economy just doesn’t work. Quite simply because we don’t have the information to enable us to do such detailed planning.

My latest book is “The No Breakfast Fallacy, why the Club of Rome was wrong about us running out of resources.” Amazon and Amazon.co.uk. $6.99 and relevant prices in other currencies.

Discussion
10 Comments
    Sep 28, 2015 28:51 AM

    So with the lowest labor participation rate since 76/77, declining electric production, declining rail and shipping traffic, stagnate wages, and the lowest home ownership rates for Americans under 65 in the history of our Country (in spite of historically low interest rates this guy thinks we may not have grown at 3.9%? Weird.

    Sep 28, 2015 28:26 PM

    I am short a massive position in U.S. equities SPZ15 for the last several weeks and will hold that short in the weeks ahead. Many told me months ago the stock market would not fall and continue its ascent. I would be wrong.

    Many told me and continue to believe the economy is fine many months ago and
    nothing to be concerned with. I would be wrong.

    Many told me and continue to believe precious metals have bottomed many months
    ago. I would be wrong.

    Turns out I was right. I’m always right. Just one time I thought I was wrong, I found out
    I was right.

    The financial storm we have entered will be at least 10 fold worse than 2008. Minimum.
    Its going to take a lot of luck because with world war now brewing, catastrophic annihilation lies ahead that will make the above 10 fold look like a beautiful Hawaiian
    vacation sipping your favorite cocktails on the beach and fine dining all your meals residing at your favorite 5 star hotel suite.

    Again, I will be right. Within 6 to 10 months most people will have lost everything. However, thats only the beginning of sorrows. This is not your great grandpa’s depression. This is your ancestors dark ages moment only much worse. The dark
    ages collapse saw 99% of the population go to peasant style lifestyle. Poverty that
    a meal is a great luxury.

    Think I’m wrong, think again. I have proven right, time and time again.

    Sep 28, 2015 28:39 PM

    Also, with the above circumstances and oil in a depression, precious metals are in
    a down trend for the next many months. Odds are for a few years yet.

    Miners are all headed for penny stocks and receivership/insolvency.

    NEW PARADIGM !!! Its been in play now for many months. We have
    only just begun this journey to the dark ages. A year from now the
    world will be dramatically changed. In several years many will perish
    billions of lives lost.

      Sep 28, 2015 28:02 PM

      GOOD GRIEF…JOHN….YOUR A RIGHT BUNDLE OF LAUGHS.

    Sep 28, 2015 28:49 PM

    Thanks-You bet-laughed all the way to the bank today massively short stock
    futures SPZ15.

    Anyway, I guess you’re hitting home runs with those silver slugs. Good bet after
    all these years. In a year give or take the banksters will pay you a visit at the very
    lows in silver. Everything will be collapsing and they know everyone will be desperate
    to sell. Includes 98% of the population. That means you.

    Can you spell. REGURGITATE !!!

    Have a nice day !!! I know I am. Some things never do change. Keep dreaming Tony !

    Sep 28, 2015 28:49 PM

    NEXT !!!!!!!!!!!!!!

    Proponents are talking QE in the gold community. NOT GOING TO HAPPEN !!!

    The elite will perform the same protocol as 2008. Only this time all classes of
    assets will be on sale for pennies on the dollar. Especially miners. They are
    already scraping the bottom and with metals prices collapsing much further
    i.e. ABX could very well be trading under a dollar. Everything will be crushed
    stocks, RE etc. etc. You won’t be able to sell a car or house. Its going to be
    catastrophic.

    After all though, very few things or people will survive. This is the new paradigm.
    For those who are still in denial, several months from now if you are still in disbelief
    with this world breaking apart catapulting downwards, then certainly you have been
    permanently brainwashed.

    Unfortunately, ‘you” are hopeless and terminal.

    WHAT TIME IS IT !!!!! Its time to realize this is the death spiral to the dark ages.

    As usual, I am right. Just one time I thought I was wrong, I found out I was right.

    REMINDER : Anyone who has ever bet against me- lost. You disagree, you have already
    lost and you are wrong. You have zero odds in any bet against me.

    You say, we will see. I have called every market turn and in gold as well. RE has been
    a little tricky but in 2014 it declined then bounced back. It will go down the poop chute
    with everything else. It has formed a mega top. DOWN EVERYTHING GOES. We are only
    about 2 years from the dark ages. The most destructive massive crash the world has ever seen has started. Again, I am right.

    Anyone who disagrees with me, is DEAD WRONG.

    Sep 28, 2015 28:09 PM

    BTW – stop taking in the snake oil with analysts, participants and bloggers
    running their mouths. Like the last few years all these same people are
    going to be way off the mark. Its really pathetic out there.

    Statistics- 90% of investors eventually lose their money. Imagine now, with
    a financial storm that comes around once ever 500 years.

    Sep 28, 2015 28:09 PM

    every 500 years.

    Sep 29, 2015 29:32 AM

    Well , JOHN. Have a great time loosing every thing you worked so hard to accumulate……….Just think when your scenario comes to pass…We will both be equal….HaHa , who would have thought that….Have a good day.

    Sep 29, 2015 29:18 AM

    That’s – OLD NEWS – Tony. What you really need to know is the road is narrow that
    leads to paradise. The road is broad that leads to eternal destruction.

    Many or most everyone are being deceived. Don’t let that happen to you – Tony.