Here is how the GDP was manipulated Q1 & going forward

Discussion in 'Economics' started by gastropod, May 1, 2010.

  1. Yet more manipulations to "show" a "soaring" economy....

    Here is the press release that went out to the general public...

    You will note there is a link in (roughly) the seventh paragraph titled :"Technical Note" and it will bring you to a pdf...

    The pdf describes the "enhancements". As usual for government/FedRes slight of hand, you have to go into the pdf to find the "nuggets." The pdf is only 3 pages long, so in this case it wasn't a hard dig. The second page holds the the "real meat" of the enhancements...and of course the WAY bigger "enhancement" was left as the second item.

    First item (the second item has far bigger implications): (Generalizing here) The American Recovery and Reinvestment Act...blah..blah...blah... The Bureau of Economic Analysis could not remove the effects of the stimulus package from their calculation of the GDP. Many billions of dollars were added to the GDP number published, because they could not remove the effects of the stimulus.

    Second item...AND HERE IS THE KICKER! The GDP USED TO BE calculated using only "production and nonsupervisory worker on private nonfarm payrolls." The NEW method of calculating GDP (which began WITH THE FIRST QUARTER OF 2010) includes ALL EMPLOYEES on nonfarm payrolls. No mention is made in the press release that went out to the public that the wages of managers, supervisors, VPs, CEOs etc. are now included in the published GDP. Comparing the GDP calculated for the fourth quarter 2009 and first quarter 2010 is comparing apples and oranges. To say that the GDP increased from Q4 2009 to Q1 2010 is absurd! They CAN'T know that - the calculations they made are totally different. No mention is made of what component of the published GDP came from "the rest of the employees!" (This will make debt/GDP look better - only prolonging the agony.) Final little goody...the BEA is going to be "enhancing" that new number (using ALL EMPLOYEES) throughout their "more comprehensive" releases - meaning (at least to me) - the first calculation the BEA does for the GDP will ALWAYS be low and WILL ALWAYS be revised UP in the future.

    Your thoughts?

  2. slackjaw


    Theres nothing new here. No one can say for a fact that we would have been better or worse off without this type of manipulation. But earnings are up and blue collar businesses in my area that were at a standstill last year are now seeing work orders come in. I believe many traders are waiting for a 5% pullback so that they may double their long positions or put their cash to work, and that to me is a bullish economic indicator.
  3. My thoughts are that the GDP numbers had they been done correctly would've come out so bad, it litterally would've panicked the world and melted us overnight.

    I remember 5 years ago when the GDP was 12.6 trillion and I remember the money being thrown around everywhere. Everyone had cash and everyone was making money. Now people are not buying as much, not building as much, not producing as much, but our GDP is 14.2 trillion! I would not doubt if our GDP was in the 9-10 trillion range right now using the old calculations we used 5 years ago. Obviously if we tell the world that, its game over for us though, so enjoy the party another year I guess. Just keep taking the painkillers until they kill us or our supply runs out. *shrug*
  4. I could not agree more!!! Using the old calculations *****pooof****** it would all be over. They added a LOT of people...and the best they could muster was a 3.2% increase - WOW!!! I think you are right it would have been in the 9-10 trillion range - SCARY!!!

  5. Hello slackjaw,

    I guess I disagree with you, because the "new" GDP numbers included a LOT of people and the GDP did not go up that much for such an inclusion. I think the blue collar people are worse off, because of this manipulation. At least if the numbers had looked REALLY bad, the politicians may have pushed for more job creation. With the a "new" numbers, the politicians can sit on their hands and point to the "excellent" GDP and say that nothing should be done as the economy is getting better and the jobs will come shortly.

  6. The goal is to keep everything going, with the appearance of improvement, until after the midterm elections. I bet 2011 is when America will go for an austerity package. I've posted in earlier posts that calculation parameters for numbers like unemployment, the real deficit, etc.. are constantly changed and manipulated to make the situation look better. I wouldn't be surprised if even more are changed since this is an election year.

    One of the few numbers that can't be changed is tax revenue/tax withholding. If the economy is improving, that number should be increasing as well since economic activity generates taxes.
  7. IMO the GDP number is meaningless and must be replaced by something else.

    GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X - M).

    Y = C + I + G + (X − M)

    "G (government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits. "

    This alone leaves plenty of room for manipulation by politicians.