Critics: GDP fails ‘commonsense sniff test’

[Jim__]

Source: MSNBC

NEW YORK - It was a rare bit of stellar economic news. The Commerce Department revised Gross Domestic Product upward last month, saying the broad measure of the economy grew at an annual rate of 3.3 percent for the second quarter, up from an initial estimate of 1.9 percent.

One problem: A vocal group of analysts and economists isn't buying it.

"Quite frankly, we do not think the report passes the economic commonsense sniff test," wrote economists John Ryding and Conrad DeQuadros at RDQ Economics.

GDP measures the market value of everything produced by labor, plants and properties in the U.S. — a total of $14.3 trillion for the second quarter. The government agency charged with calculating the first estimate of each quarter's GDP has less time to do so than a ten-branch bank has to file an earnings report.

GDP is a crucial variable in setting monetary policy, such as short-term interest rates, but critics say the effort to gather and calculate the data is underfunded, hobbled by government agency infighting and overly reliant on assumptions.



Read more: http://www.msnbc.msn.com/id/26627761/

[Frank Cannon]

1. Gee, I've only been saying that for 25 years

Any chance we can also look at those unemployment numbers again?

[Frank Cannon]

2. Gee, I've only been saying that for 25 years

Any chance we can also look at those unemployment numbers again?

[Lasher]

3. The lies have gotten bigger and bigger.

Nobody believes them anymore.

[Mme. Defarge]

4. Oh,

I thought you were referring to GD Politics on DU. :blush:

(Maybe I need to get a life.)

[Jim__]

5. I never thought of that.

:D

[jakem]

8. GD:P definitely does not pass any sniff test!

:hi:

[Mme. Defarge]

9. Hey, if the shoe fits ... n/t

[Demeter]

14. You Need to Get Out More, Madame

At least over to the Stock Market Watch thread.....

[Mme. Defarge]

20. No kidding! n/t

[debbierlus]

6. I have been on DU too much...I thought - General Discussion Presidential

:P

[CatholicEdHead]

15. Same here

Then I saw I was in LBN, not The Lounge (which often takes potshots at GDP) ;)

[Tempest]

7. The critics are right

Three points:

1) GDP isn't adjusted for inflation so it doesn't give a true measure of growth. Adjusted for inflation, GDP is negative and has been for several quarters.

2) GDP reflects total income and thus doesn't give a true measure of how well (or not so well in this case) the average person is doing.

3) Wasn't the stimulus package also 3.3%? Now that's convenient.

[Jim__]

10. They do try to strip inflation out of GDP.

From the same article:

To strip inflation out of the data, the government devises a "deflator" that subtracts inflation from nominal GDP.

In the second quarter, that deflator was 1.3, a figure that was half what it was in the first quarter and tied with a 10-year low. Starting with nominal GDP of 4.6 and subtracting that 1.3 deflator, we get real GDP of 3.3.

If the government had used the same deflator as it did for the first quarter, 2.6, GDP would have only been 2.0.

Schiff and others say the deflator made inflation look much weaker than it was and the economy look much stronger.

I've thought the government underestimated inflation since they changed the way they compute it - i.e. making the basket of good variable by removing items as they go up in price.

[NeoConsSuck]

12. And speaking of inflation

those numbers they come out with are imaginary also.

[corporatemedia]

16. Also the GDP does not take into account the increase in population. And our...

poplulation increases at the average annual rate of almost 1%.

So we have to get to one percent GDP just to break even.

[redqueen]

17. Do they also include mortgage loans in GDP?

I don't know where I read that, but if true... wtf?!

[bulloney]

11. GDP was adopted during HW Bush, switching from the GNP.

I'm not sure of the different intimate details between the two, but I remember the Wall Street Journal reporting on the first GDP report that the economy showed growth, but would have shown it declined under the GNP.

Right away, that told me that the new stats were implemented to make the economy look stronger than it was.

[Critters2]

13. Oh, different GDP. I thought those bastards in GD:Presidential were up to something. nt

[MadrasT]

19. *snort* ROFL - me too

:spray: :rofl:

[high density]

18. But the election is coming soon!

Of course GDP is up!

[TexasLawyer]

21. yes, and gas prices are coming down a little

Strange how that happens around election time! :shrug:

[edwardian]

23. Gas prices, government figures on growth, unemployment numbers

overall effectiveness of "The Surge", just about anything that gets reported or that comes from the government as "news" is propaganda. The conspiratorial nature of government is obvious to all who drop the scales from their eyes and look honestly at this Ponzi scheme called America. A good piece of land run by a bunch of criminal and religious rejects from Europe...(not including everyone, just the ones who belong to the "dark side".)

[FlyingSquirrel]

22. GD:P sniff test right here

commonsense sniff test for GD-P