Tuesday, February 24, 2009

The Week's GDP Report

On January 30th, the BEA released its first estimate (known as the "advance" estimate) of 2008 Q4 GDP. The estimate said that, if Q4 repeated itself 3 more times, real GDP in 2009 Q3 would be 3.8 percent below what it was in 2008 Q3. (In other words, 2008 Q4 was 0.95 percent lower than 2008 Q3 GDP).

Throughout February, the BEA has obtained additional data to improve that estimate, and will release a revision (known as the "preliminary" estimate) this Friday. I think the revised estimate will be between -2.8 and -3.8 -- somewhat better than the advance.

The main area I see for revision is the investment deflator -- it seems to me that the advance estimate exaggerated the inflation rate for investment good prices and thereby overestimated the decline in real investment.

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