The US economy grew at a slower pace than expected to start 2016.
But that is only a guess and really, what we learned on Thursday morning amounts to a whole bunch of not much.
At an annualized rate, GDP grew 0.5% in the first three months of 2016. Thursday’s report, however, was merely the first of three estimates that Bureau of Economic Analysis will put out on the quarter. And then after these revisions new methods of calculating this figure could see even more revisions down the line.
Simply put, we have an idea of what happened in the US economy over given periods, but it will take years to get a clear picture of what happened. And even then.
Over the last several months, incoming data has clearly painted a picture of a US economy that is doing good but not great.
Consumption trends are decent, manufacturing is recovering, the housing market is improving but still pressuring low-end buyers, while the labour market is strong though wages aren’t picking up as the Federal Reserve might hope.
Thursday’s report confirmed this view. But this is my view!
Others will say that Thursday’s report is the beginning of a trend that will see the US economy eventually tip into the recession that is of course already here if only we could see it. Which, fine. Also a view. And there are more to be had.
But whether GDP is revised up or down, the change from the first to the third estimate the change is usually 0.6%.
This is a big range! History says, then, that in time we might learn the US economy grew 1.1% to start the year or contracted 0.1%. Or more! Or less! Who knows!
Last year, we wrote that economists have asked whether the BEA’s seasonal adjustment process for the first quarter is broken given that Q1 GDP has been below-trend for the last five years, with this year marking a sixth.
And in a blog post last year the BEA outlined how the various GDP estimates come together, with the BEA noting that 45% of the first estimate is based on surveys or data that are subject to revision with another 14% of the estimate based on historical trends.
Or, as the BEA cautions at the top of its release, “The Bureau emphasised that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency.”
So we probably don’t know enough about the economy to definitely know something about the economy, but we’ve got some ideas.
Which means everyone gets to be right.