GDP Growth Update

Real economic growth in the third quarter has been upgraded from an annualized rate of 3.8% to 4.3%.

Using my letter grade system for GDP, this is still a "B".

Alternatively, the initial announcement (called an advance estimate) indicated growth was in the 58th percentile, while today's updated release (called a preliminary estimate) is in the 69th percentile.

If I were giving pluses and minuses, I'd say that further consideration has suggested we bump the economy up from a "B-" to a "B".

Comments

[spencer]

Since WW II the average quarterly growth rate of real GDP has been 3.5%.

It has been above 5% some 31% of the time, above 6% some 27% of the time and above 8% some 12.6% of the time. The above 5% includes the above 6%, etc.

It looks to me that your grading scale suffers from inflation. If you used something like a normal distribution a 4.3% growth rate would still be a C.

[David Tufte]

Hmmm. Well this is open to debate, so here goes.

1) I only went back to 1983, but the average is just about the same (a 3.4 in my sample versus 3.5 in yours).
2) A "B" is above average on grade scales. My metric has anything above a 3.5 grading out as a "B", so that sounds semantically correct.
3) The GPA for my sample works out to be a 2.39. Is that indicative of grade inflation - I am regarded as a somewhat hard grader, but I often have classes with higher GPAs?

Another way of looking at this is that most people regard 1997-99 as really good years. Yet the average growth then was just about the same as in this quarter - 4.4% vs. 4.3%.

I think it's a lot more instructive to say that Clinton got 3 A's, 4 B's, and 5 C's over that period, and then to note that Bush got a B for this quarter, and be happy with that.

For curiosity, Bush has gotten 1 A, 7 B's, 3 C's, and a D over the last 12 quarters. Putting that into GPA terms, it makes clear that there isn't much difference between Clinton's 2.8 (in his best years) or Bush's 2.7 over the last 3 years.

My point is that it focusing too highly on the numbers obscures the fact that the economy is doing pretty well.