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GDP tanked in the second quarter, but by how much?

This morning the Bureau of Economic Analysis (BEA) released its figures for Gross Domestic Product (GDP) in the second quarter of 2020. To nobody’s great surprise, it made for grim reading:

Real gross domestic product (GDP) decreased at an annual rate of 32.9 percent in the second quarter of 2020 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 5.0 percent.

This is bad whichever way you look at it. Still, there are some important qualifications around that number. NBC News tweeted:

The bit about GDP just isn’t true. The 32.9% decline is an ‘annualized’ rate, which means that that is how much GDP would decrease by if that rate continued for a full year, which few people think it will. The actual decline in GDP in the second quarter was 9.5%: still horrible, but somewhat less scary.

Secondly, not only is this figure ‘annualized’ but it is also ‘seasonally adjusted’. According to the BEA’s website, its:

…estimates of GDP are seasonally adjusted to remove fluctuations that normally occur at about the same time and the same magnitude each year. Seasonal adjustment ensures that the remaining movements in GDP, or any other economic series, better reflect true patterns in economic activity. Examples of factors that may influence seasonal patterns include weather, holidays, and production schedules. 

The non-seasonally adjusted GDP decline in the second quarter was 7.0%. Again, still horrible, but, as Figure 1 shows, our economy routinely experiences real terms, non-seasonally adjusted GDP declines of 3 to 4% every year from January to March for the reasons the BEA gives above. These aren’t reported because, for understandable reasons, our government and media focus on seasonally adjusted data, but we still experience and survive them.

Figure 1: Percentage change in Real Gross Domestic Product, Billions of Chained 2012 Dollars, Not Seasonally Adjusted

Source: Federal Reserve Bank of St. Louis

To repeat, these are terrible numbers and this isn’t intended to downplay in any way the scale of the economic damage our economy has suffered this year. When you shut large chunks of it down to combat a virus, that can only be expected. Other countries have experienced similar damage. We have to hope that the numbers in the third quarter are much better.

John Phelan is an economist at the Center of the American Experiment. 

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