Home » Economy » US GDP Even Worse Than It Looks, Again

US GDP Even Worse Than It Looks, Again

by John Rubino on May 29, 2014 · 12 comments

As expected, the US revised the most recent quarter’s GDP from barely positive to sharply negative today. But once again the true extent of the problem was hidden by some statistical sleight of hand, in this case wildly-optimistic inflation assumptions.

Here’s an excerpt from the Consumer Metrics Institute’s just-published analysis:

May 29, 2014 – BEA Revises 1st Quarter 2014 GDP Sharply Downward to Outright Contraction at Nearly a 1% Annual Rate:

In their second estimate of the US GDP for the first quarter of 2014, the Bureau of Economic Analysis (BEA) reported that the economy was contracting at a -0.99% annualized rate. When compared to prior quarters, the new measurement is down over 3.6% from the 2.64% growth rate reported for the 4th quarter of 2013, and it is now more than 5% lower than the 4.19% reported for the 3rd quarter of 2013.

The previously reported quarterly growth in real annualized per-capita disposable income was revised downward to $95 (and that disposable income figure is now $227 per year lower than it was during the fourth quarter of 2012), while the household savings rate shrank again to 4.0% (down -0.9% from the 4.9% in the prior quarter and down -2.6% from the fourth quarter of 2012).

And lastly, for this report the BEA assumed annualized net aggregate inflation of 1.28%. During the first quarter (i.e., from January through March) the growth rate of the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) was over a half percent higher at a 1.80% (annualized) rate, and the price index reported by the Billion Prices Project (BPP — which arguably reflected the real experiences of American households while recording sharply increasing consumer prices during the first quarter) was over two and a half percent higher at 3.91%. Under reported inflation will result in overly optimistic growth data, and if the BEA’s numbers were corrected for inflation using the BLS CPI-U the economy would be reported to be contracting at a -1.52% annualized rate. If we were to use the BPP data to adjust for inflation, the first quarter’s contraction rate would have been a staggering -3.64%.

Summary and Commentary

This is a bad report, and the numbers speak for themselves. And looking at the trend lines, things are unlikely to get better anytime soon.

But we also feel compelled to digress from the bad news itself. While other people may be utterly shocked to find that the economy is in contraction, we are much more inclined to outrage at the possibility that the BEA published clearly fictitious numbers last month in an effort to “ease” the readings towards the bad news that they knew (or should have known) would follow shortly :

— If they (the BEA) did not realize last month that the US economy was in contraction during the first quarter of 2014, they are sufficiently incompetent (in practice and procedure) to merit a complete overhaul and/or gutting of the agency.

— That said, gross incompetence is probably the lesser evil — simply because if they knew full well last month how bad the news really had become, they simply descended into a Goebbelesque world of publishing what they wanted the world to think.

Some thoughts
Isn’t it interesting that of all the available inflation indicators, the BEA always seems to choose the one that makes GDP look most favorable? What a fascinating coincidence.

Another stat that’s worth noting is “annualized per-capita disposable income,” which is lower today than at the end of 2012. How can an economy be growing if the disposable income of the average citizen is shrinking? The answer is that it can’t. And remember that under realistic inflation assumptions, the shrinkage would be even bigger, meaning that the contraction in the size of the US economy would appear to be accelerating rather than abating.

  • Bill Johns

    “This is a bad report, and the numbers speak for themselves. And looking at the trend lines, things are unlikely to get better anytime soon.”

    OK. I suppose it matters … someplace. It matters a bunch how and where we shop, and how we live. I noted that the President doesn’t seem to care. Members of congress show by their collective inaction about the economy that they don’t care. The markets are at or very near all time highs so the HFT crew is totally indifferent as long as there are a few buck$ to be made. If the president, congress and big banks don’t care nothing will change. Nothing. Change will happen when the federal government and big banks feel it is in their personal best interest. I wonder if the next president will tell us that they will offer “Change we can believe in” too.

    • Bruce C

      Possibly one of the most revealing articles I’ve read in a while is here: http://www.zerohedge.com/news/2014-05-27/here-mystery-and-completely-indiscriminate-buyer-stocks-first-quarter

      • Bill Johns

        Yeah, I saw that one too. Answered some questions I had but does not explain the massive effort at manipulation also reported by ZH at


        No company doing buy-back pulled this stunt. Isn’t the SEC suppose to monitor that sorta behavior?

        • Bruce C

          According to the folks at The Daily Bell the “financial elites” are trying hard to keep juicing the stock market higher. If so, then the SEC isn’t going to do anything. For that matter that could be why the GDP reports – and who knows what other stats – are manipulated.

  • Bruce C

    When you think about it, I think this says a lot about either people’s faith in the honesty of government or their level of gullibility, or both. I mean, trillions upon trillions of dollars are at stake with these numbers. Some people will kill for $20, so why is it so hard to believe that monumentally important figures with far reaching implications are massaged a little, especially when they can always be revised later?

    Has anyone ever read or heard from any of the thousands of bureaucrats who populate these god-awful bureaus and agencies of the government? I haven’t. I haven’t heard any one ever say anything at all about how these statistics are generated. I could believe the process could range from being mind-numbingly complex or literally chosen by a committee.

    Whether it’s by incompetence or malfeasance I just hope that some how, some way those within the financial and banking systems get totally reamed.

    • MacFly1

      You won’t have any trouble convincing the awake people who are on this blog.

  • MacFly1

    Part of the reason we don’t see as much inflation (we do have SOME, though!) is due to exporting our inflation to other countries. That’s going away in July when the BRIC’s bank surfaces and thereafter follows gold-backed Dinar, Ruble, Yuan/RMB, etc.

    Goodbye, petrodollar and goodbye Mr. Chips.

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  • BlowMeABC

    . . . . . “to merit a complete overhaul and/or gutting of the agency” …
    Similar to the excuse used for a bad Q1, revamping any govt agency will be another weather related event … as in when hell freezes over.

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  • Storewars News

    read! Very informative. L’Oreal commits
    800m Euros to R&D. Read it here: http://bit.ly/1jL46SW.

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