After Revisions, Real GDP And PCE Even Farther From Previous Peak*

[*Estimates changed for quarters till peak.]

These two graphs show the revisions for real GDP and PCE.

The recession was clearly worse than originally estimated (we suspected this already using Gross Domestic Income).

GDP Revision

In fact real GDP in Q2 2010 was lower than originally reported for Q1 2010. And annualized real GDP is still 0.85% below the pre-recession peak. This means that real GDP would have to grow at a 3.4% rate in Q3 to reach the recession peak by the end of Q2 2011.

This really shows how far off St Louis Fed President Bullard was in a speech last month. From Bullard in June:

As of the first quarter of 2010, real GDP stands just shy of the 2008 second quarter level, so that growth of about 1.25 per cent would be sufficient to allow real GDP to surpass the previous peak. At that point, the U.S. economy would be fully “recovered” from the very sharp downturn of late 2008 and early 2009. To be clear, the 1.25 per cent is a quarterly number, and would be 5.0 per cent at an annual rate. Although I think that 5.0 per cent at an annual rate is too much to expect for current quarter real GDP growth, it seems like a reasonable possibility over the next two quarters combined. Given these conditions, I expect the U.S. recovery in GDP to be complete in the third quarter of this year.

I disagreed with him, and pointed out that GDI suggested downward revisions – and now the situation is clearly worse.

Real PCE was revised down even more.

PCE Revision

Annualized real PCE is now 1.1% below the pre-recession peak, and would have to grow 4.4% in Q3 to reach the previous peak by Q2 2011.

With a 2nd half slowdown, I don’t expect to reach those levels until the end of the year or in 2011.

Cleveland Fed President Sandra Pianalto had it right in February:

[I]t may take years just to get back to the level of output we enjoyed in 2007, just before the economic crisis began.

If things go well, the economy will be back to pre-recession levels later this year or in 2011. No wonder there is so little investment. And no wonder there is so little hiring!

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