Can we ever trust Real GDP numbers again ?

On Friday 
the advance number 
for 2Q 2018 Real GDP 
was announced,
as a 4.1% annual growth rate
during the past three months,
and Trump fans got so excited
they are almost predicting 
an economic boom
of 4% growth, or more, 
from now on.

That won't happen, 
because:
(1)
  Labor force growth 
is too slow, 
(2)
  Productivity growth
is too slow
and the 
(3)
  The unemployment rate
is too low 
(a declining unemployment rate
is a major cause / symptom of
economic growth)

Major GDP revisions 

happen every five years,

and these were very large,

and unexpected.

Real GDP for 1Q 2018 ,

as of Thursday,

was revised higher: 

  Almost $1 trillion higher

on Friday, the next day,

from about $17 trillion

to $18 trillion !

We were told:
"The timespan for this year’s 

comprehensive update is 1929 

through the first quarter 2018."

Total "Real” GDP increased 

from data revisions 

from $17.37 trillion in Q1 (unrevised) 
to $18.32 trillion in Q1 (revised)

– a huge difference 
of +$952 billion.

A tiny revision caused this to happen:

"For 2012–2017, the average rate 

of change in the prices paid by U.S. 

residents, as measured by 

the gross domestic purchasers’ 

price index, was 1.2 percent, 

0.1 percentage point lower 

than in the previously 

published estimates."

The previous 

“average rate of change” 

in prices paid by consumers 

was +1.3% per year 

over the five years, 

which was already 

ridiculously a low
inflation rate,

in my opinion.

A lower inflation rate 
used to deflate

“nominal” GDP growth

(delete growth of the numbers

caused by price inflation)

translates into 

higher “Real” GDP growth ! 

"Real” GDP 
grows faster 

by lowering 
the inflation 

measure.

The only 
adjustment 

released Friday

that mattered 

for “real” GDP, 

because it
accounted for 

almost all of the

$1 trillion increase,

was a tiny downward revision

in the prices-paid index,

which had 
a huge effect

on "Real GDP !


And look at the huge revisions
to the personal savings rate: