23 posts categorized "GDP"


New 2017 GDP Estimates

This morning, the BEA released the GDP estimates for last year.  The headline figure is the advance estimate of GDP for the fourth quarter of 2017. Real GDP, inflation, unemployment and the labor force participation rate will be the main statistics that we will follow this semester. After taking into account two strong quarters and historically low unemployment rate, at 2.6%, real GDP growth seems underwhelming. But let's not jump into premature conclusions.


We can look more closely at the different components of GDP to better understand why the last quarter was actually pretty strong.  GDP is divided between spending on consumption (C), Investment (I), government spending (G), and net exports (NX).  Consumption increased by 3.8%, investment by 3.6%, government consumption expenditures and investment by 3.0%, exports by 3.9 percent.  What limited overall GDP growth is a 13.9% increase in imports.  This increase in imports is not harmful to the U.S. economy (we get more goods and services!).  But imports enter negatively in the National Income Accounts and so they reduce the estimate of GDP growth.  It is a little ironic that imports increased so much, given the Trump administration’s protectionist rhetoric.  In fact, this represents the largest import growth since the third quarter of 2010.


Second Consecutive Quarter of Solid Growth

For the first time since 2014, real GDP in the U.S. grew at 3% or better for two consecutive quarters.  This is based on the advanced estimate for real GDP growth for the third quarter of 2017 released today by the BEA. This is a positive sign especially considering that real GDP per capita since the end of the Great Recession had only been growing at a slow 2.1%.


Unlike the last quarter, where growth was mainly driven by a spike in personal consumption, this quarter showed a much more leveled growth across the different factors that comprise GDP. One change worth mentioning is that for the third time since 2014, there has been a decrease in imports which may be result of a weakening dollar.



The U.S. Economy is Muddling Along

This morning, the BEA released its advance estimate of GDP data for the first quarter of 2017.  Real GDP growth is estimated at just 0.7 percent.   Remember that this first estimate is rough and has lately been subject to upward revisions.  Still, this estimate implies that the U.S. economy is really just sputtering along. 


None of the four main components of GDP increased much.  The table below shows how each contributed to the overall growth rate. 


The meager increase in consumption spending is particularly worrisome in historical context: this is the smallest increase since the fourth quarter of 2009.  This is a bit surprising due to the recently high estimates of consumer confidence.   And remember that consumption makes up about 70% of total GDP spending. 




2016 GDP Report: Weak and also Misleading

The advance GDP estimate for 2016 is sobering but also an opportunity to learn a little about the details of how we measure GDP. Let's look at the headline data first and then circle back for a quick lesson in GDP accounting. 

Overall, GDP in the fourth quarter grew at just 1.9 percent, according to this first estimate.  This estimate will be revised over the next three months, but it is not encouraging.  The figure below shows real GDP growth by quarter back to 2006.  The last quarter of 2016 caps off an anemic year of 1.8% growth overall.  2016 pales in historical context, since average real GDP growth over the past 50 years was about 3 percent. 


Now, let's dig a little deeper into the fourth quarter figures to see the contribution to growth from the four major categories of GDP expenditures: consumption, investment, government and net exports.  The table below shows how each of these components contributed to the overall growth rate of 1.9 percent.


Growth in private spending on consumption and investment goods and services was strong.  But net exports (exports minus imports) pulls down the final number by 1.7 percent.  This is largely due to an increase in imports of $65.7 billion during the fourth quarter.  Now we get to the (boring) details of national income accounting.  Imports don't make us worse off - more imports mean we get more stuff from around the world.  But when we tally up gross domestic product (GDP), we subtract imports because they weren't produced here. 

Bottom line: the fourth quarter wasn't great, but the large increase in imports skews measured GDP downward some. 



Is 2% the New Benchmark? I Hope Not.

GDP growth continues to disappoint. Today's advance estimate from the BEA pegs real GDP growth at just 1.22% in the second quarter.  Further, the new report revises the first quarter rate down to just 0.8 percent.  Ooof.  The graph below shows quarterly growth rates in real GDP since the beginning of 2006.
Quaterly GDP July 2016
Before the Great Recession, we got used to an average of 3% real GDP growth for decade after decade.  But since that recession ended, real GDP has grown at just 2% per year. The last four quarters are now: 1.99%, 0.87%, 0.83%, and 1.22%.  A decade ago, we'd consider that a horrible year. 
So why isn't there more concern? Because unemployment rates have been consistently around 5 percent.  But don't forget about the very low labor force participation rate, which is below 63% and this past year has been lower than at any time since the 1970s.  So maybe this is the new normal: 2 percent real GDP growth, 5% unemployment, and millions of workers sitting on the sidelines.  I hope not. 


GDP 2015: Not so Great

This morning, the BEA released the Advance Estimate of GDP for 2015, and boy is it disappointing.  Keep in mind that this estimate is early and will be revised over the next few months.  But still, 0.7% growth for the fourth quarter is positively pedestrian.  In addition, with all four quarters now in, the overall growth rate of real GDP for 2015 is estimated at just 2.4%.  Yuck.  These are the kinds of numbers that give fodder to those who think we are headed toward a recession.

The graph below shows quarterly growth rates since 2005.  As you can see, only the second quarter was above the long run average of 3 percent. 


Finally, the table below shows the contribution to the overall 2015 growth rate from each of the four types of spending: consumption, investment, government, and net exports. 


I certainly hope that these figures are revised upward over the next few months.  In the immediate future, I'll be very curious to see the jobs report from the BLS next week. 



College Students Need Macroeconomics Principles

Should we ditch macroeconomics or perhaps reduce it to two weeks?  In a recent blog post, Noah Smith argues that most of the material in a Principles of Macroeconomics class isn’t really necessary.  After teaching macro principles to more than 1,000 students per year since 2003, it is easy for me to find the blind spots in Noah’s view.  More than anything, it is pretty clear that Noah doesn’t spend much time with college students. 

Let me start with what Noah gets right: students should learn the Solow model for long-run growth, and the AD-AS model for business cycle analysis.  He also includes “the standard Milton Friedman, New Keynesian, AD-AS, accelerationist Phillips Curve theory of monetary policy.”

Now we come to Noah’s first howler: he believes that this material should take “about two weeks.”  Two?  What students is he teaching?  I teach at the University of Virginia, a really great university with super students.  But this takes six weeks, not two. When my students show up for macro principles, very few even know that interest rates are market prices.  I do teach the Solow model but most Macro principles instructors believe it is just too hard for the intro level. 

More than that, Noah leaves out a host of other macro topics that students need to learn at the intro level, whether they continue in economics or not.  This list includes:

1. Key macroeconomic variables.  These need to be defined, explained, and put in their proper historical perspective.  These include real GDP growth, unemployment, inflation, and interest rates.  And not just for the United States.

First off, the way we measure these variables actually matters.  Consider that unemployment rates do not include underemployed or out-of-labor force workers.  Or that GDP only includes market goods.  Both of these are relevant for policy and have been discussed in the media recently.  And historical perspective is really key here – it can be one of the best gifts you can give your students. What is a big number or a small number?  When unemployment is 7%, is that high or low?  How about in the U.S. versus Spain?  Or when real GDP grows by 4%, is that high or low?  How about the U.S. versus Mainland China?  Most college students won’t know this without a macro principles course.

2. The loanable funds market. You can’t understand financial collapse/contagion without a good understanding of the loanable funds market.  A big part of this discussion is also forming an intuitive understanding of interest rates, which is not natural for most students.  In my principles course (and textbook) I even cover mortgage-backed securities, securitization and moral hazard now so that the students understand the Great Recession.

3. Fiscal and monetary policy. In many universities, this is the one place where real economic policy is taught - Intermediate Macroeconomics typically focuses on theoretical models.  I view these policy discussions as voter education curriculum.  Students need to know what deficits mean and something about historical perspective here too.  They also need to know where government revenue comes from and how it is spent.  Hint: it’s not all spent on foreign aid and welfare!  And what about the Fed? This is the course where students learn about Fed policy and both actual and perceived effects on the economy. 

If time permits, it is great to also throw in international trade and finance, like the balance of payments (many misconceptions arise from a misunderstanding of how capital inflows are related to merchandise trade). 

Basically, to cover all of this takes about a semester.  It is foolish to think that two weeks is enough.

By the way, my favorite macro textbook covers all of these topics clearly in a great one-semester format.


GDP Third Quarter 2015

The latest GDP release from the BEA estimates that U.S.real GDP grew at 1.5% in the third quarter of 2015.  This is just a mediocre growth rate but revisions to second quarter data have now increased the final growth estimate to a robust 3.9 percent.


Recall that inventory is part of investment expenditures in GDP.  In the second quarter, private inventories fell by 1.44%.  This drop was the biggest negative of the major pieces of GDP.  In total, investment fell by about 1% in the third quarter.  The table below shows how the four major pieces of GDP each contributed to third quarter growth.




Ho-Hum Growth in Second Quarter

Today, the BEA released their  first (Advance) GDP estimate for the second quarter of 2015, estimating real GDP growth of 2.3%.  These figures will be revised over the next few months, but for now, they indicate positive but pedestrian growth below the long-run historical average of 3%.  The graph below shows quarterly real GDP growth since the beginning of 2004.

 GDP 2q2015

The big news is that the growth estimates for the first quarter of this year were revised up to +0.6% from -0.2%.  This means that the economy has had positive growth now for over a year.

The table below shows the contributions of each of the four major pieces of GDP:

Growth components


GDP Down in First Quarter (Again)

Real GDP in the U.S. fell by 0.7% in the first quarter of 2015, according to the latest report from the BEA.  The graph below shows growth by quarters since the beginning of 2005.


It seems reasonable to ask: what is wrong with the first quarter?  After all, since 2010, there have only been three quarters where U.S. real GDP has been negative - and these were the first quarters of the years 2011, 2014, and 2015. 

Economists are of three views on this.  The first two are summarized well by Justin Wolfers here. One is that there are exogenous random shocks have hit the economy, and this has lately been in the first quarter. An example is bad weather (think polar vortex). Second, it is possible that the BEA is not correctly measuring the seasonal adjustments in the first quarter of data.  In other words, the GDP estimate is just wrong.

Finally, Tyler Cowen posits that maybe the economy does naturally go through a seasonal cycle after all.  Perhaps this is related to a lull after the holiday season.  From this view, the first quarter downturn is accurate and should not be smoothed out of the data with seasonal adjustments.

Whatever the case, we can all agree to hope for a large uptick in the second quarter.

Become a Fan

April 2018

Sun Mon Tue Wed Thu Fri Sat
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30          

Norton Economics Books

Principles of Macroeconomics

Learn More

Principles of Economics

Learn More

Principles of Microeconomics

Learn More

The Ultimate Guide to Teaching Macroeconomics

Learn More

The Ultimate Guide to Teaching Microeconomics

Learn More