Fourth Quarter GDP Revised Slightly Upwards  

The Bureau of Economic Analysis released its revised estimate of 4th quarter GDP growth today, and now says that in inflation-adjusted terms the economy expanded 0.1 percent rather than contracting 0.1 percent as they originally said. This is a textbook case of some of the problems in economic data reporting. Obviously 0.2 percentage points is not a big difference, but coming in below zero generated a lot of alarmist coverage when the initial estimate came out even though everyone knows that these figures tend to be revised. In fact if anything this revision is unusually small. But the revised numbers—though more accurate—will get less attention than the initial read.

My view of the initial read was that the underlying situation was better than it looked and that continued to be the case for the revised figures.

Delving too deep into the details can get a bit misleading, but the key thing here is we had a staggering 22 percent decline in military purchases which—even accounting for sequestration—simply doesn’t reflect any actual medium-term trend in the military budget. Less volatile indicators like personal consumption expenditures and net exports were perfectly consistent with the kind of “steady growth that’s not fast enough to rapidly close the output gap” that we’ve seen for many quarters now.