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Brent Meyer |

Economist

Brent Meyer

Brent Meyer is a former economist of the Federal Reserve Bank of Cleveland.

08.10.09

Real GDP: Second-Quarter 2009 Advance Estimate and Comprehensive Benchmark Revision

Brent Meyer

Real GDP decreased at an annualized rate of 1.0 percent in the second quarter, according to the advance release by the Bureau of Economic Analysis (BEA), beating expectations of a 1.5 percent decline. Though, due to the comprehensive revision, this decrease is coming off a downwardly revised first-quarter estimate of -6.4 percent (from 5.5 percent previously). In fact, from the start of the recession in the fourth quarter of 2007 to the first quarter of 2009, the annualized percentage change in real GDP was revised down from −1.8 percent to −2.8 percent. The weaker trajectory resulted in a year-over-year growth rate in real GDP of −3.9 percent through the second quarter, a post-World War II low.

Incorporating the new information from the comprehensive revision reveals that real GDP is now 3.7 percent below its level at the start of the recession, roughly 1.0 percentage point below the previous estimate (through the first quarter). The current cycle is much more severe (in length and depth) than the average of all the post-World War II cycles. Also, the current recession has reached a depth not seen even during the 1973–1975 recession, which at its deepest point was 3.2 percent below its peak level.

The rate of contraction slowed markedly from the first quarter to the second, due to a much smaller decrease in investment, a smaller decrease in inventories, stronger government spending, and a much less dramatic drop in exports. Real business fixed investment fell just 8.9 percent, compared with a 39.2 percent tumble in the first quarter, while the decline in residential fixed investment slowed from −38.2 percent in the first quarter to -29.3 percent in the second. The continued shedding of private inventories subtracted 0.8 percentage point (pp) from real GDP growth in the second quarter, compared to 2.4 pp in the first. Net exports added 1.4 pp to output growth during the quarter, down from 2.6 pp in the first, as the decline in exports lessened from −29.9 percent to −7.0 percent and imports decreased 15.1 percent in the second quarter compared to a decrease of 36.4 percent in the first. These “improvements” were tempered by a 1.2 percent decrease in real consumption expenditures in the second quarter, following a 0.6 percent increase in the first (that was revised down from a 1.4 percent gain). The four-quarter growth rate in consumption fell to -1.8 percent, its deepest downturn since 1951.

Real GDP and Components, 2009:Q2 Advance Estimate

Quarterly change,
billions of 2005 $
Annualized percent change, last:
Quarter
Four quarters
Real GDP
−33.0
−1.0
−3.9
Personal consumption
−28.7
−1.2
−1.8
  Durables
−19.7
−7.1
−9.2
  Nondurables
−13.1
−2.5
−2.8
  Services
1.3
0.1
−0.2
Business fixed investment
−30.6
−8.9
−19.6
  Equipment
−20.6
−9.0
−21.0
  Structures
−9.6
−8.8
−16.9
Residential investment
−30.5
−29.3
−27.1
Government spending
34.9
5.6
2.2
  National defense
21.3
13.3
7.5
Net exports
47.2
  Exports
−25.6
−6.9
−15.7
  Imports
−72.8
−15.1
−18.6
Private inventories
−141.1

Source: Bureau of Economic Analysis.

 

The comprehensive revision incorporated (among other changes) a new classification system for personal consumption expenditures (PCE) and PCE prices (which resulted in food services being added to the core PCE price index), a new treatment of disasters, a reference year for chain-type aggregation to 2005 from 2000, and some new source data (notably the BEA’s 2002 benchmark input-output accounts, “which provide the most thorough and detailed information on the structure of the U.S. economy”). There were some very interesting developments that arose due to the revision and methodological changes.

The first interesting revision was to real GDP during the 2001 recession, making the episode look even less like a recession. From the release: “For the contraction that lasted from the fourth quarter of 2000 to the third quarter of 2001, real GDP increased at an average annual rate of 0.1 percent in the revised estimates; in the previously published estimates, it had decreased by 0.2 percent.” The release also noted that previous cycles were left little revised.

Second, the personal savings rate was revised up substantially, on average roughly 1.0 pp per year since 1995. For example, the previous estimate of the personal savings rate for 2005 was 0.3 percent, which was revised up to 1.4 percent. As of the second quarter of 2009, the savings rate has now climbed to 5.2 percent, compared with 1.5 percent at the start of the recession.

Finally (and perhaps most importantly), even with the addition of food service prices, the core PCE price index is little changed. From the first quarter of 1995 to the first quarter of 2009, the average difference in the annualized quarterly percent change is a little less than 0.1 pp. However, the revision to the last few quarters has been to the downside, leaving the four-quarter growth rate at 1.6 percent in the second quarter.