follow up Jim’s post yesterday, Thoughts and prospects on measurement errors. Note that GDP unexpectedly declined, with AR rising 1.6 percentage points from the previous quarter, versus the consensus estimate of 2.5 percentage points. On the other hand, GDP+ grows faster, and final sales to domestic private buyers also grow faster.
figure 1: GDP (black bold), GDPNow as of 4/24 (light blue square), GDPNow as of 4/26 (blue square), New York Fed instant forecast as of 4/26 (red inverted triangle), ” Wall Street Journal April survey average (light green)), CBO estimate of potential GDP (grey), both in 2017 $1 billion SAAR. Sources: BEA (1Q2024 ahead), Federal Reserve Bank of Atlanta, Federal Reserve Bank of New York, Congressional Budget Office Budget and Economic Outlook (February 2024), and author's calculations.
While 1.6 percentage points seems well below 2.5 percentage points (q/q AR), keep in mind that this advance estimate will be revised, possibly significantly.As this article points out Bank of East Asia Notes From October 2023 (sample period 1996-2022):
source: Bank of East Asia(2023).
What about alternative measures of economic activity? Below I plot reported (spending side) GDP, GDO (average of GDI and GDP) and GDP+, and in a separate chart final sales to domestic private buyers, which is often interpreted as a better measure Total demand.
figure 2: Above: GDP (bold black), GDO (tan), GDP+ (light blue) linked to fourth quarter 2019 GDP levels. Bottom panel: Final sales to domestic private buyers (bold black). Total 2017 SAAR $1 billion. GDI is estimated based on a 2.2% annual increase in the net operating surplus component. Source: BEA 2024Q1 advance release, Philadelphia Fedand the author's calculations.
On an aq/q AR basis, estimated GDO has not grown at all. The missing part in GDI I was filled by net operating earnings growth of 2.2%, with first-quarter corporate profits forecast to grow by 2.2%. This means real net operating surplus is expected to resume falling in the first quarter.
image 3: Net operating earnings in $1 billion SAAR (blue, left axis), and 2017 $1 billion SAAR (tan, right axis). Deflation is done using the GDP deflator. Source: BEA and author's calculations.
Although both GDO and GDP+ decelerated (the former dropped to 0 percentage points), final sales continued to grow rapidly (AR 3% quarter-on-quarter), indicating continued strong aggregate demand.
