Truck and Barter: 2004Q3 GDP Rises from 3.7% to 3.9%

November 30, 2004

2004Q3 GDP Rises from 3.7% to 3.9%

By Kevin

Jeannine Aversa of the AP files an absolutely meaningless report:

The economy - helped out by more brisk consumer and business spending - grew at an annual rate of 3.9 percent in the third quarter, a performance that was stronger than previously thought.

The new reading on gross domestic product, which is based on additional data, was up from the 3.7 percent growth rate first estimated for the July-to-September quarter, the Commerce Department reported Tuesday.

GDP measures the value of all goods and services produced within the United States and is considered the broadest barometer of the economy's health.

The 3.9 percent growth rate registered in the third quarter represented a pickup from the second quarter's 3.3 percent pace and marked the best showing since the opening quarter of this year.

A revision of +0.2% is not good news, it's noise: an irrelevant and economically meaningless statistical abberation. There is, practically speaking, absolutely no difference between 3.7% and 3.9% quarterly growth at an annual rate, even if the BEA can allegedly pinpoint where it previously undercounted. In fact, there is practically speaking, no difference between 3.9% and 3.3%. GDP measurement is not that accurate!

Journalists seem to have no background in errors of economic data; so here are two rules of thumb: 1) the average change in GDP from the first to third release is about +/-0.5%, and 2) revisions after that (which are uncorrelated with the first two revisions) revise estimates an average of +/-1.0%. Anytime you see changes smaller than that, they're more likely than not to be eliminated by later revisions.

Note to The New York Times web editor, just because it sounds important, doesn't mean it should be on the front page:

Posted at November 30, 2004 09:29 AM

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