Wednesday, August 31, 2005

Was real GDP revised up or down?

Today's revised GDP report showed how it is important to check the details and not just the headline. To be sure, the revisions are so small that given the margin of error that exists it don't mean much, but like yesterday's post on the Hong Kong GDP report it illustrates the principles with which to analyze.

On the one hand, the headline number, that is the volume measure was downwardly revised from 3.4% to 3.3%.

But on the other hand, as the GDP price index was upwardly revised nearly as much and as the domestic purchases price index was downwardly revised by nearly 0.1%:point, the lower deterioration of America's terms of trade means that the recorded purchasing power of Americans was unchanged or very slightly (less than 0.1%:point) upwardly revised.

However, as government consumption was upwardly revised by $2.7 billion, this means that more than the entire minuscule upward revision is eaten up increased diversion of resources to government, meaning that private sector purchasing power was revised down.

Moreover, the news that the factor income surplus declined means that national income grew slower than GDP.

Another new fact not revealed in the former realease was that corporate profits surged to a new record of 11.1% of national income, up from 10.0% in the second quarter of 2004 and 8.5% in 2002. This could implicate that business investments will likely continue to surge.


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