The recent good (or less worse than expected) GDP numbers became instant headlines across newspapers and blogs, and presented relief from, what has otherwise been, a barrage of bad news.

GDP contracted by 1% in the last quarter, which was significantly lesser than the previous quarter, and this raised the hopes of a turnaround.

The headline number was good, and I believe that the overall economy is improving, but if you really want to make sense of these numbers (and headlines); you need to take a deeper look.
Here are some interesting things about the GDP numbers, which help understand the situation a little better, and look beyond the headlines.

1. Source: Let me start out with the source. The source of these numbers is the Bureau of Economic Analysis, and you can find the raw GDP numbers on their website. If you don’t mind the small font, this should be the place to look at, when the numbers come in. They have short summaries of all numbers impacting GDP, which is devoid of any opinion and presents a good picture of what is really going on.

2. Advance Estimates: The first set of numbers that come out are “advanced estimates”, as these are numbers that are subject to revision, and are based on incomplete data. A revision is issued later on (August 27 for the last quarter), which is the official number. The first look at the number provides relief, but I’d still wait for the final numbers to come out before declaring a V shaped recovery.

3. Based on the previous quarter: The 1% decline is from the first quarter to the second. Bloomberg estimated that GDP was down 3.9% from the second quarter in 2008, which was the biggest drop since quarterly records began in 1947. I thought this was an interesting fact that didn’t get much coverage, because if you look at it this way, the number doesn’t look good at all.

4. Federal Spending: Federal Spending grew 10.9%, as compared with a drop of 3% in the previous quarter. This number tells you what a big cushion the economy got from the various stimulus programs that the government ran. Without the stimulus, the numbers would have been much worse than they were, because personal consumption, which is one of the main components of US GDP, was down this quarter as well.

5. Declining Business Inventory: Business inventory was another interesting number to look at. There were reductions of about $141.1 billion in business inventory, and along with the inventory declines in the first quarter, this sets up the Q3 and Q4 numbers for a bit of a rebound. So, this is something to keep in mind when the numbers are reported in the next quarter or when you hear economists forecasting their GDP numbers upwards for the next quarter.

A 1% contraction is certainly better than a 6.4% contraction, but these other factors lend a slightly more sobering perspective to the GDP number.

This guest post was from Manshu from OneMint, a blog that focuses on personal finance, investing and economics. If you enjoyed his post today, please take a minute and subscribe to his feed. You can read more about my guest posting policy here.

By The Weakonomist

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categories: economics