Wednesday, February 29, 2012

GDP Rockets

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.0 percent in the fourth quarter of 2011, according to the "second" estimate released by the
Bureau of Economic Analysis. In the third quarter, real GDP increased 1.8 percent.

These mass aggregated numbers are not my favorites, but Keynesians love them. Most noteworthy, the GDP climb occurred while Paul Krugman was blind to the turnaround and putting his finishing touches on this.

Krugman who also fears deflation will have to also explain the developing price inflation. The GDP related price indexes soared. The price index for gross domestic purchases, which measures prices paid by U.S. residents,increased 1.1 percent in the fourth quarter, 0.3 percentage point more than in the advance estimate, and an annualized rate of 4.4 percent. Even the Nixon favorite, "core inflation", soared, excluding food and energy prices, the price index for gross domestic purchases increased 1.2 percent in the fourth quarter, an annualized rate of 4.8 percent.

These price advances, it should be noted are all before the latest soaring gasoline prices.


  1. Just like the the reported quarterly GDP percentage, the price index for gross domestic purchases is already annualized so you're annualizing it a second time. 1.1% represents a huge slow down from the previous quarters. It was 3.9% in the first quarter, 3.3% in the second quarter, and 2.0% in the third quarter.

  2. I would think it's very difficult to know real GDP. Since it includes government spending, much of the "GDP" comes from printed money. Price increases usually lag the monetary injections by several monts or longer. So, I'd think the adjustments for inflation would be wildly inaccurate.

  3. As far as it relates to the Fed, you should be focusing on nominal variables not real variables. The 3.9% change nominal GDP was lower than the previous two quarters and lower than the 5% trend of the past 20 years. This is tight money. NGDP needs to be much higher to make up for the previous years.