The Commerce Department’s Bureau of Economic Analysis put out new GDP numbers today. Normally I like to get all excited about these releases, but today’s data on the second quarter of 2013 is paired with historical revisions that serve as an important reminder of how fragile these early estimates are. And the news is good!
For starters the BEA says that the recession wasn’t quite as bad as we’d previously thought. The old numbers said that from the forth quarter of 2007 through the second quarter of 2009, the economy contracted at an average annual rate of 3.2 percent per quarter. The revised data suggests the contraction came at a rate of only 2.9 percent per quarter. They follow this up by saying the recovery has been somewhat stronger than we knew. The old data said that since the economy stopped shrinking it’s been growing at an average annual rate of 2.1 percent. The new data says it’s actually been growing at an average annual rate of 2.2 percent.
Now don’t break out your party hats. The fact remains that we lived through the worst recession since World War II and followed it up with a faint recovery rather than a sharp bounceback.
And the basic contours of that faint recovery remain the same. In a classic postwar recession, the Federal Reserve pulls the interest rate lever down down down down until low interest rates spur a construction and car-buying boom that pulls the whole economy back up. But this recession started from a baseline of low inflation and low nominal interest rates, so we hit zero and monetary policymakers became tentative about what to do next. The idea of using fiscal policy—government spending and tax cuts—to fill the demand gap gained a lot of popularity in the winter of 2008-2009 but the Obama adminstration never committed to even trying to fully fill the output gap in this way, and the political tides swiftly turned toward deficit reduction instead of stimulus.
But the good news is things are better than we thought. Going even deeper, this is also the quarter that the BEA officially makes the methodological changes I wrote about in April that increase the overall size of the American economy by about 3 percent. This largely has to do with treating the creation of “intangible goods” as a form of investment (you produce Orange Is the New Black in one year and hope to earn an ongoing stream of income from it in the future, much as you would with a new airplane) and doesn’t especially impact the short-term growth picutre.