Friday, August 27, 2010

US GDP Growth for Q2 2010 Hit By Large Downward Revision

The growth rate of US real GDP was hit by an unusually large downward revision for the second quarter of 2010. The second estimate of Q2 GDP, released at the end of August by the Bureau of Economic Analysis, showed growth of just 1.6 percent from the previous quarter, compared with an advance estimate of 2.4 percent released at the end of July.

GDP data, which provide critical information to policy makers, are subject to a trade-off between accuracy and timeliness. The so-called advance estimate, released about three weeks after the end of each quarter, is based only about 45% on actual data for the quarter. The rest comes from models and projections. The average revision between the advance estimate and the third estimate, released about three months after the end of the quarter, is plus or minus 0.6 percentage points.

The 0.8 percentage point downward revision for the second Q2 2010 estimate was unusually large. The biggest single cause of the revision was faster than expected growth of imports, which outpaced steady, but slower, growth of exports. International trade is a frequent source of revisions to GDP data, since the advance GDP estimate contains little if any actual trade data for the reported quarter.

Follow this link to download a free set of classroom-ready slides covering the Q2 2010 GDP data revisions, and explaining the trade-off between timeliness and accuracy of data

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