Don’t Play GDP Politics

August 6, 2020

These days, pretty much everything is hyper-political, including death rates from disease, wearing masks, opening schools, whether some demonstrations are “mostly peaceful” or “violent,” and now GDP.

Late last week, plenty of headlines blared that real GDP declined 32.9% in the second quarter, suggesting that our country’s output of goods and services was roughly 1/3 lower than in the first quarter of the year. The problem is that this superficial summary of the data is a gross exaggeration.

Real GDP was not 32.9% lower in Q2 than it was in Q1; it was 9.5% lower. And if it continued to decline at that same 9.5% rate for three additional quarters (so, four quarters in all), it would be 32.9% lower than it was in Q1. In other words, the drop wasn’t 32.9% for one quarter, it fell at a 32.9% annualized rate for one quarter…

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