How U.S. GDP Will 'Most Likely' Be Revised In July 2016

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How much will U.S. GDP most likely be revised when the U.S. Bureau of Economic Analysis publishes its annual revision to the nation's real GDP on 29th July, 2016?

We started working on that question last Thursday, the day after the BEA released its revision of GDP data for the individual 50 states and the District of Columbia, when we identified the "maximum potential" size of the revision to be a -2.0% decline from its value that was recorded at the end of 2015.

We updated that post two days later to take into account the contribution to national GDP from the U.S. government's overseas military and civilian activities, which add to the GDP contributed by the 50 states and the nation's capital to be equal to what the BEA should report for the nation's entire GDP. (Although we did that work last Friday, we only just featured that contribution to national GDP in the period from 2005-Q1 through 2015-Q3 yesterday.)

We then used that information along with the BEA's just-revised data for the individual 50 states plus DC to determine the "maximum likely" size of the upcoming revision to the nation's real GDP. The chart below reveals what we found.

Click to enlarge

But the "maximum likely" revision of -1.4% of previously reported GDP through 2015-Q4 is not the "most likely" size of the upcoming revision to the nation's GDP will be, because the BEA's plans for the revision of the national level GDP data will only cover the period from 2013-Q1 through 2016-Q1.

That means it will miss the discrepancy that opens up in 2012-Q3 and 2012-Q4 between the just-revised state level GDP and previously indicated overseas federal GDP and its previously recorded national-level GDP. That discrepancy is just over $55.1 billion in terms of constant 2009 U.S. dollars in 2012-Q4, which itself is over 24% of the full $225.7 billion discrepancy that our previous calculations indicates between the pre-revised national level real GDP and the post-revised state level GDP data through 2015-Q3.

Because the BEA won't be including that $55.1 billion portion of the discrepancy from 2012, the "most likely" size of the revision that it will report at the end of July 2016 is therefore -1.1%, which is 24% less than the "maximum likely" revision of -1.4% we previously calculated.

Our "most likely" estimate assumes, however, that the BEA's estimates of the contribution to national GDP from the U.S. government's overseas military and civilian activities will not greatly change from what it has previously indicated. Should the BEA revise its estimates of this component of nation real GDP, the actual size of the BEA's upcoming revision to the national GDP will entirely depend upon how that single factor might change.

In the case that it turns out that more GDP than previously indicated was generated through supporting the U.S. government's various overseas activities, the actual magnitude of the revision will be smaller than what we've now indicated the "most likely" size of the revision to be, and vice versa for the opposite scenario.

So, if you want to place your bets on the over or under, all you need to do is to take your best guess as to just how much more or less of the nation's real GDP has been generated through supporting the U.S. government's activities overseas than what the BEA has previously indicated. To make it interesting, we've set up an online survey where you can put in your two cents and also find out what the consensus is for all those who have answered that single question!