Ed Dolan's Econ Blog

Revised GDP Data Show US Economy Much Stronger than Previously Thought

Today’s report from the Bureau of Economic Analysis shows the US economy to be much stronger than previously thought. The advance estimate for the second quarter of 2014 showed real GDP expanding at an annual rate of 4 percent. The new data revised the dip in GDP for Q1 from -2.9 percent to -2.1 percent, and raised the estimated growth rate for three out of four quarters in 2013. The following chart shows previously reported and revised data for the past seven years.

As the following table shows, the turnaround in the economy was very broadly based. Consumption contributed 1.69 percentage points to the growth of GDP, a little above the average of the past two years. Investment was very strong, contributing 2.57 percentage points to growth, far above its recent average. Both fixed investment and inventory investment reversed their declines of Q1.

The performance of the government sector was one of the big surprises. Government spending has been a negative factor in economic growth throughout much of the recovery. The federal government contribution to GDP growth, at -.05 percentage points, continued negative, but the contribution of state and local government turned around sharply, with a positive contribution of .35 percentage points.

Exports also returned to positive territory. Exports have been one of the few consistent bright spots throughout the recovery, so their dip in Q1 was especially disappointing. In contrast, the positive contribution to growth for Q2 of 1.23 percentage points was the strongest since Q4 2010, suggesting that some exports may simply have been delayed by bad winter weather. Imports enter the national accounts with a negative sign, so the -1.85 percentage point contribution to growth shown in the table for represents an increase in import volume for Q2.

The rebound in Q2 GDP comes as no real surprise, given the improvements in the labor market that the Bureau of Labor Statistics has already reported, including a quarterly gain of 816,000 payroll jobs and a decrease in the unemployment rate from 6.7 percent in March to 6.1 percent in June. As usual, the advance estimate of GDP released today is subject to substantial revisions as more data come in, but so far, so good.

3 Responses to “Revised GDP Data Show US Economy Much Stronger than Previously Thought”

windrivenJuly 31st, 2014 at 1:57 pm

Great news!

Could you help me understand why the chart comparing initial with revised numbers shows only very minor corrections through 2010 but considerable corrections routinely after that? Has something significant changed in the way the data are gathered or the numbers calculated?

Ed Dolan EdDolanJuly 31st, 2014 at 3:16 pm

I think the reason is that these revisions are done often enough so that the biggest changes are in the most recent data, and older data that have already been looked at more than once are not subject to such big changes. (If I am wrong about that, someone please correct me.)