Updated GDP Forecast for 2012-Q2 and a Peek at Q3

Political  Calculations
Posted: Aug 06, 2012 12:01 AM

Since the U.S. Bureau of Economic Analysis revised the data we use to project future GDP for the U.S., we're updating our forecast accordingly from what we had previously posted.

Going by our preferred Modified Limo forecasting technique, we now see a 50% probability that real GDP in 2012-Q2 will be finalized at a value over $13,608.0 billion, and a 50% probability that it will be finalized under that level.

The BEA's first advance estimate for the quarter is $13,558.0 billion, so at present, it appears that we overshot the target by 0.37%, although we are still within our originally projected forecast range (where we had given a 68.2% probability of that 2012-Q2 real GDP would fall between $13,367.7 billion and $13,649.9 billion in terms of constant 2005 U.S. dollars.

Peeking ahead, using the BEA's first estimate of 2012-Q2's GDP (they will "finalize" the estimate for the quarter with their third estimate in September 2012), we would project real GDP in 2012-Q3 to be roughly $13,617.1 billion in the inflation-adjusted terms of chained 2005 U.S. dollars, with a 68.2% probability of falling between $13,475.3 billion and $13,758.9 billion. Real GDP vs Climbing Limo vs Modified Limo Forecasts, 2004-Present, 2012-Q1 Final (Revised)

All-in-all, that suggests a pretty lackluster GDP growth rate is in store for the third quarter of 2012.

On Friday, 27 July 2012, the Bureau of Economic Analysis revised its estimates of the U.S.' inflation-adjusted GDP going back to the first quarter of 2009. Our animated chart below shows what changed.

The quick takeaways:

  • The U.S. economy performed better than previously reported in 2009, as the December 2007 recession bottomed and began turning around.
  • The economic recovery following the bottoming of the recession has been far weaker than the previously reported data indicated.
  • We really don't know what to make of the GDP data recorded in 2011-Q4 onward, where the reported data is really characterized by its relative lack of adjustment in the BEA's 27 July 2012 revision. It would be really odd that after the rather large adjustments of 2009 through 2011-Q3 that the BEA would suddenly master the determination of GDP for just these most recent quarters.

Taking the bigger picture into account, given the typical 6 to 18 month lag in time from when macroeconomic policies are implemented to when they begin having a measurable effect upon the economy, it would appear that the policies implemented by the U.S. government and Federal Reserve in 2008 were more effective in arresting the decline of U.S. GDP and initiating the economic recovery in the second quarter of 2009 than the data previously suggested. Before and After 27 July 2012 GDP Revision, Real GDP in Chained 2005 U.S. Dollars from 2000-Q1 through 2012-Q2

Meanwhile, the revised GDP data suggests that policies implemented by the U.S. government in and after 2009 would appear to have been largely ineffective in promoting a more robust economic recovery, as they failed build on the energy it took to arrest the decline and to begin the recovery in the first place.

We wonder when the policy makers of 2009 and afterward first recognized that their policies weren't working the way they believed they would. And perhaps a better question is why didn't they adapt those policies once they did?


Our chart above uses the animated PNG format, where your ability to see the animation may depend upon whether your web browser supports the format. If that's not you, here are the frames for the animation: