# GDP Numbers Are Not Making Sense

by: Ed Zimmer

I’m not a professional mathematician, but I used to think I was pretty good at basic math. The GDP numbers that are being released by the government, like so many figures released by the government, do not add up.

The Bureau of Economic Analysis, which released the GDP numbers, stated that the Real Gross Domestic Product decreased in the fourth quarter of 2008 at an annual rate of 6.3 percent, falling to 14.2 trillion dollars. This followed a decrease of point-five percent in the third quarter. For the year however, the GDP was up 2.2 percent.
By that reasoning, the increases in the first two quarters of 2008 should have been quite high, not the point –six and 2.8 figures cited by the BEA. So bear with me as I try to reason things out based on what we have been told.
According to the government, the GDP as of the end of 2007 was 13.8 trillion dollars. By the end of 2008, the GDP was 14.2 trillion which figures out to an overall increase of 2.9%. Using the end of the year GDP for 2007 and 2008 shows that things were pretty decent overall, but it also calls into question the quarterly numbers.
The BEA says the quarterly changes are based on changes from quarter to quarter. Using this as our guide, the annualized increases for the quarters were 0.6, 2.8, -0.5 and -6.3. Now unless the government is using some form of new math, or an economic model I am unfamiliar with, these changes should have resulted in a net decrease in the GDP from the starting figure of 13.8 trillion at the end of 2007 to 13.68 trillion at the end of 2008. In fact, no matter how you move the numbers around, the first two quarters of increases, if indeed offset by the indicated decreases, should have produced a collective decrease in the GDP, not an increase.

 Starting GDP Rate Annualized difference divided 4 New GDP 13,807,000,000,000 0.60 13,889,842,000,000 20,710,500,000 13,827,710,500,000 13,827,710,500,000 2.80 14,214,886,394,000 96,793,973,500 13,924,504,473,500 13,924,504,473,500 -0.50 13,854,881,951,133 -17,405,630,592 13,907,098,842,908 13,907,098,842,908 -6.30 13,030,951,615,805 -219,036,806,776 13,688,062,036,132 13,688,062,036,132
If we take the rate of decrease as an annualized and break it down monthly, the number plunges even more.

 Starting GDP Rate Month 1 Month 2 Month 3 13,807,000,000,000 0.15 13,827,710,500,000 13,848,452,065,750 13,869,224,743,849 13,869,224,743,849 0.70 13,966,309,317,056 14,064,073,482,275 14,162,521,996,651 14,162,521,996,651 -0.13 14,144,110,718,055 14,125,723,374,122 14,107,359,933,735 14,107,359,933,735 -1.58 13,884,463,646,782 13,665,089,121,163 13,449,180,713,049 13,449,180,713,049
The key to both of these is that the number declines, not increases for the year. Under no formula could I find a way to reconcile the yearly increase when the quarterly changes, including the massive decrease in the fourth quarter, point to a decrease in the real GDP.
Even averaging the changes in 2008, the result is a negative number (-.85) per month.
Where this begins to have an impact is in the budgeting process, where the real GDP estimate for 2008 is being pegged at 14.3 trillion dollars, hundreds of billions of dollars higher than the quarterly numbers are accounting for. Even the CBO’s estimate of a 2.2% annual decrease for 2009, starts at this higher number and still predicts a GDP of 14.24 trillion by the end of 2009. Again, the percentages and the final numbers don’t compute.
If these basic economic figures being provided to the public are inaccurate, then many of the governments assumptions about the economy are flawed as well and traders may be making decisions based not on fact, but on fiction.

Disclosure: Author is invested in various retirement funds and long SLV, GLD with some physical holdings in silver and gold.