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Q3 GDP Report, First Revision: 3.5% Growth Is Terrible

Dec. 04, 2018 3:02 PM ET20 Comments


  • The 3.5% headline number is strong, but the underlying details are most certainly not.
  • Most of the revisions were in the wrong direction. Some are very large.
  • 88% of the growth this quarter came from household services and non-farm inventories.
  • The trade picture is ugly and even exports may be starting to be a problem.
  • Government spending is becoming an increasing portion of the GDP growth story, led by state and local budgets and the Federal defense budget.

Monday, December 3, 2018

California, USA

I’m Not Just Trolling You

Yes, the title is trolling you. Historically, 3.5% is pretty good. Headline numbers are great for looking at historical trends, but often tell you very little about what happened in the quarter. This is especially true with GDP which is a single number that is the sum of many variables, which themselves are sums of other variables and so on.

Need convincing? If you want one takeaway from this report, try this on: without changes to private inventories, this is a 1.2% print, not 3.5% — inventories accounting for a stunning 65% of growth in the quarter. It better be a merry Christmas, or there’s going to be some overstocked warehouses.1

Never trust the headline number.

A Note About Data Revisions

When a data set is revised, it generally means the preliminary numbers come with very high error intervals. The worst offender here is the monthly jobs number, where error intervals and revisions are huge. The summed absolute revisions for 2017 was 368,000 jobs out of total 2.1M in the initial reports, for 17% worth of absolute revisions over the year. For the first 8 months of 2018 where we have full revisions, it is 241,000 out of 1.6M in the first reports, for 15% worth of revisions. Of those 20 months, 10 had >10% revisions, 5 had >30% revisions, and September, 2017 had a whopping 215% of revisions. None of this is unusual. Preliminary numbers are not reliable.

There are many things that cause revisions, and without being an economist at the BLS or BEA, it’s impossible to know what they are — every reporting period is different and is filled with non-recurring items. But it’s always been my (mostly unsupported2) theory that the size and

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