The Dwindling US Economy
The announcement today (April 29) of a barely positive GDP first quarter 2015 growth rate of 0.2 percent (two-tenths of one percent) is an intentional exaggeration.
Today’s GDP report is the “advance estimate.” There will be two revisions, with the first occurring in one month on May 29.
Although the “consensus estimate,” which is Wall Street’s estimate, declined dramatically over the past month, the consensus estimate was for 1.0 percent.
The BEA’s advance estimate bears the burden of impact on financial markets even though it is the least reliable estimate. Subsequent revisions receive much less attention. Because of its market impact, the advance estimate is fudged by the Bureau of Economic Affairs (BEA) in order not to upset financial markets keyed to the consensus forecast.
All indications are that the first quarter experienced negative GDP growth, that is, a decline from the previous quarter. However, if BEA reported a negative GDP when the financial markets were relying on positive real growth, the government’s Plunge Protection Team might be unable to prevent a substantial market decline.
Therefore, the BEA in its advance estimate reported a barely positive result that kept GDP out of negative territory. This gives financial markets a month to undergo an orderly reduction prior to the first and then second revisions of the advance estimate, or simply to forget the poor performance altogether until the second quarter advance estimate.
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