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The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.


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August 04, 2009


GDP benchmark revisions: Count me very surprised

Last Friday morning, the Bureau of Economic Analysis released its advanced estimate for second quarter gross domestic product (GDP) as well as its benchmark data revisions. These revised data tell us a slightly different story with a rather negative twist in looking at the last two recessions. The new GDP numbers show that the 2001 recession was not as severe as originally thought while the 2007 recession is worse than first reported. Below are the comparisons of the pre- and post-2005 benchmark data:

080409a

080409b

As a follow up to David Altig’s blog posting, "Unemployment Rate: Count Me Surprised," I took the graphs he used measuring cumulative percentage change loss for GDP against the peak unemployment rate during the recession. The GDP numbers below are updated with the new benchmark revision data:

080409c

Note: Macroeconomic Advisors data were used in the original post from July 23. However, since Macroeconomic Advisors has not yet updated their forecasts, I am assuming for the purposes of this blog post that the recession ended with the second quarter of 2009.

After these revisions it’s clear to see that the current recession is even more of a dramatic Okun’s Law outlier than was originally thought when observing the pre-revised data. As background, Brad DeLong described Okun’s Law thus in a recent blog post:

"If GDP (production and incomes, that is) rises or falls two percent due to the business cycle, the unemployment rate will rise or fall by one percent. The magnitude of swings in unemployment will always be half or nearly half the magnitude of swings in GDP."

Although the revised GDP data show more negative growth rates for the current recession, which should make the current recession less of an outlier using Okun’s Law, GDP growth during the 2001 recession was higher than the first observations, which changed the trend line and outweighed the effects of the revision to the data of the current recession.

By Courtney Nosal, economic research analyst at the Atlanta Fed

August 4, 2009 in Business Cycles , Data Releases , Labor Markets | Permalink

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Comments

From Wikipedia, "The name refers economist Arthur Okun who proposed the relationship in 1962 "

This is a 1950's and 60's relationship; it's hardly surprising that it doesn't hold in the post-OPEC, globalized, just-in-time, contingent labor world. And that's *before* throwing in the fact that this recession is a financial-panic recession, not a 'take away the punchbowl' recession.

Posted by: Barry | August 05, 2009 at 09:48 AM

So what are the chances that in this case (because of massive amount of gov't intervention) unemployment is now leading GDP and is a harbinger of larger GDP declines in the future?

Posted by: cubguy99 | August 05, 2009 at 12:02 PM

Tim Duy's latest (at http://tinyurl.com/lh9d5c):
"I have argued that most if not all of the jobs in the manufacturing sector simply are not coming back. My suspicion is that firms will use the recession to expand overseas supply chains wherever possible. "

Global labor arbitrage, the endless squeeze. Thanks Greenspan and all your neo-lib enablers, like Rubin, Summers, and the like. Thanks economics profession, for feeding the 'job destruction machine' with your ideologies and your denial.

Posted by: lark | August 05, 2009 at 12:13 PM

Well, it's also possible this is an allocation issue. Meaning where labor was once productive is now much more so somewhere else. I hope that's the case anyway.

The trick is as a worker, how do you know where that somewhere else is? You don't and that sucks.

If econ folks were suddenly all sent to China, what would we do with all those educated and well trained people?

Certainly whats happening now is they would go down the food chain. But in 10 years who knows...

Posted by: FormerSSResident | August 06, 2009 at 03:46 PM

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