No, GDP Didn’t Jump “33.1%” in Q3, But 7.4%, after Plunging 9% in Q2: Time to Kill “Annualized” Growth Rates. Imports, Powered by Stimulus, Dragged on GDP
GDP back to Q1 2018. Worst ever “net exports.” The decline in government spending was also a drag. “GDP per Capita” bounced back only to 2017 level.
The spectacular spectacle of an absurd creature called the “annualized” growth rate of GDP appeared again this morning, and the headlines screamed that GDP, adjusted for inflation, surged by a record of “33.1%” in Q3. On the face of it, this would mean that the economy increased by one-third from Q2. But that’s the magic of “annualized” rates. And it’s time to kill them in headline reporting.
That “33.1%” reflected the jump in Q3 from Q2 but roughly multiplied by 4 to produce a theoretical figure of what GDP for the whole year would be if it kept surging four quarters in a row like this. And that’s not going to happen, just like the plunge in Q2 wasn’t actually “31.4%” and wasn’t repeated four quarters in a row. Deeper down in its GDP report this morning, the Bureau of Economic Analysis also reported “not annualized” figures. And not annualized, GDP jumped by a record of 7.4% from Q2, after the record 9.0% plunge in Q2 from Q1:
Both the jump in Q3 and the plunge in Q2 were the sharpest moves ever in the quarterly GDP data, which began in 1947. Before then, there were only annual data.
And we faced another “annualized” figure in today’s GDP reporting: that GDP in Q3 was $18.58 trillion “annual rate” and “seasonally adjusted” and “in 2012 dollars.” These “2012 dollars” are used to adjust for inflation (loss of purchasing power). And so these terms show how far economic activity dropped in Q2 and the partial bounce-back in Q3. This measure of GDP puts it back where it had first been in Q1 2018:
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