Determining GDP

August 22, 2002

The Bureau of Economic Analysis, an agency of the Commerce Department, has the unenviable task of determining quarterly fluctuations in U.S. gross domestic product. The bureau bases its estimates on information from a diverse set of sources -- not all of which are instantly available.

Consequently, revisions are frequent as more data becomes available.

  • The bureau announces an "advance" GDP estimate within a month of the end of each quarter.
  • Every year, usually in July, the bureau updates the data for the preceding three years.
  • Economists say that while preliminary estimates are imprecise, they give an indication of where the economy stands and are useful in devising economic policy.
  • The average quarterly revision is plus or minus 1.4 percentage points.

By comparison, real growth rates have ranged from -3 percentage points to +10 percent during the last two decades.

Some people think they can detect a political conspiracy to "cook" the numbers to benefit one political party or another at election times. The truth is that it is much more difficult to come up with reliable numbers when the economy is in the process of turning around -- in other words, when recessions are beginning or ending.

The bureau has worked on a plan to reduce the size of revisions by improving measurement of services and software -- which account for more than half of recent revisions.

Source: Alan B. Krueger (Princeton University), "Economic Scene: When the Economy Hits a Turnaround, Conspiracy Theories Abound," New York Times, August 22, 2002.

 

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