New Numbers Show the Economy is Worse Than We Thought

As many people know on Friday July 29, the US Dept of Commerce has posted the revised numbers for the US economy. What many people may not know is that the old numbers have also been revised. The Bureau of Economic Analysis posts GDP in real dollars, i.e., they calculate an inflation index and generate the real numbers using chained 2005 dollars. How this is calculated is an interesting topic to very few and so I won’t dwell on that part here.

The interesting part is that the numbers have been revised downward, some of them by quite a bit. In Q3:2007, just before the official start of the recession the old GDP number and the revised numbers were virtually identical. ($13,268.5 billion old vs. $13,269.8 b revised)

Now we see that the drop of the recession was much larger than we originally thought. The old trough was $13,223.5 b in Q3:2008, but now the Q3:2008 number is $13,186.9 b. The old number is 0.28% higher than the new number. Curiously, since Q3:2007, this is the smallest discrepancy. The discrepancy rises to a 1.6% differential by Q4:2009. ($13,019.0 b old vs. $12,813.5 b revised)

The upshot of all of this is that we are in much worse shape than we originally thought. The bottom of the recession was deeper than we thought and we still haven’t reached the pre-recession numbers of Q4:2007 of $13,326.0 b vs. Q3:2011 $13,270.1 b.