This morning the Commerce Department’s Bureau of Economic Analysis (BEA) released its advance estimate of Gross Domestic Product (GDP) for the second quarter of 2011. The economy grew at a 1.3-percent pace in the second quarter following 0.4-percent growth in the first quarter. On the one hand, GDP has grown for eight consecutive quarters. On the other, our economy has been hit with some pretty heavy headwinds, like sharp jumps in energy prices, stress in European financial markets, and supply chain disruptions from the tragedy in Japan.
Today’s report also included annual revisions to previous GDP estimates. Once a year, BEA revises GDP to reflect better information and methodology that has become available since its initial estimates. These revisions are quite an undertaking given the thousands (perhaps tens of thousands) of data series involved. New annual revisions tell us that the recession was even deeper than initially reported. From the fourth quarter of 2007 to the second quarter of 2009 – the trough of the recession – BEA initially estimated the drop in GDP to be 3.7 percent. With last year’s annual revisions, BEA estimated a drop of 4.1 percent (ouch). Now, based on today’s data, BEA estimates that GDP fell 5.1 percent (double ouch). BEA data is not the only data that tells us this. The Bureau of Labor Statistics payroll employment data has also been revised downward, showing yet again that the recession was worse than initially estimated.
Downward revisions to GDP during recessions are not unusual (in wonk-speak, we say that these revisions have been “pro-cyclical” in the sense that they move in a direction that reinforces the depth of the recession). Still, the magnitude of this revision is more dramatic than most. In the recession of 1981-82, the initial estimate of the fall in GDP was 2.2 percent but was later revised down a percentage point, to -3.2 percent. The pattern began similarly after the recession in the early 1990s. Initially, GDP from the third quarter of 1990 to the first quarter of 1991 was estimated to have fallen by 1.1 percent. This was later revised to a decline of 1.6 percent and then again to a decline of 1.8 percent. Finally, the figure was revised back up a bit to show a drop of just 1.4 percent.
So, the hole we have been digging out of was even bigger than we thought. With overall downward revisions concentrated at the end of 2008 and the beginning of 2009, what was already known to be the deepest recession since World War II is now proving to have been even worse. Today’s data remind us that our work is not done, and we must continue to build on the progress we’ve made over the last two years to strengthen our economy and create jobs. There are a number of things we can do - and now is the time for both parties to come together and get them done.
~Mark Doms, Chief Economist, U.S. Department of Commerce
July 29, 2011
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