Did Bureau of Economic Analysis Sandbag Report on 4th Qtr U.S. GDP ?….

The U.S. Fourth Quarter GDP growth was reported two days ago at 2.6% and that stunned everyone who were expecting a much higher number. All U.S. economic indicators including U.S. Holiday consumer spending, which accounts for around two-thirds of total GDP, were off the charts in the fourth quarter growing +5.5% over the prior holiday.

The total growth in fourth quarter consumer spending was almost four percent (3.8%), that’s the highest rate of consumer spending in well over two years.  Q4 investment in new housing increased 11.6%, business spending on equipment surged 11.4% and outlays on structures edged up 1.4%.

Before the BEA (Bureau of Economic Analysis) announcement, everyone predicted 4th quarter GDP growth would easily be over 3%, and most likely in the 3.5 to 4.0% range.

So what gives.  Why did the Q4 GDP only grow at 2.6% ?

It seems a little funny to be griping about 2.6% growth because, well, that’s really good, Bigly even; so hopefully those within the Commerce Department don’t take this review personally.  But, c’mon, we expected more…  Well, the answer to the question is actually in the first few paragraphs of their release, and later in the deep weeds of the data.  I’ll explain.

First, the part of the announcement to note carefully:

[…] The Bureau emphasized that the fourth-quarter advance estimate released today is based on source data that are incomplete or subject to further revisionby the source agency (see “Source Data for the Advance Estimate” on page 3). The “second” estimate for the fourth quarter, based on more complete data, will be released on February 28, 2018.

The “source data for the advance estimate” is another set of separate analytical disclaimers (pdf here) which informs users there are economic data-sets that contain ‘less than‘ three months of information.  To see what data is missing, and what “assumptions” the BEA  recommends, you to travel to a third level of depth (LINK HERE), and then to the key source data and BEA assumptions (excel spreadsheet here).

Don’t try this at home without a pocket protector and guidebook to the fourth level of Dantes inferno. So let me try to make this easy.

You will remember from prior conversations the U.S. GDP is the combined value of all goods and services produced and sold in the U.S. *minus* the value of all imported goods and services.

The value of imported stuff is always subtracted from value of the stuff we generate because the imported stuff doesn’t provide any economic benefit to America.

U.S. GDP is what we produce, minus what we import.  That’s important to understand.

The BEA is essentially saying there were massive amounts of imports in the fourth quarter, but they are unable to determine exactly how much that was.

That makes sense because all records for American on-line sales were broken; and a lot of those purchases were probably Chinese (and Asian, or EU) sellers, selling clothes and stuff into the U.S. as you purchased Christmas presents etc.

The BEA has no way of knowing from top-line sales (financial data) how much of the small stuff (clothes, gadgets, etc.) came from outside the U.S…. to your doorstep…. Well, not yet.

Additionally, all the inventories of similar stuff, from U.S. manufacturers and retail sellers, is now wiped out (ie. “low inventory”), and as such – the value of that inventory is gone. It is now in the bank.  There is no way of knowing how much that domestic inventory was, as part of the overall record-breaking fourth quarter sales.

So the BEA essentially deduced, ie. guessed, that a massive amount of product value needed to be deducted from U.S. GDP growth.

How much did they deduct?

Try 1.96%

Without knowing exactly how much of the overall 4th quarter retail sales were from imported products and services, the BEA went with the biggest number they could estimate.   The analysis is deep in the weeds on Chart #2 Line #50 (pdf here and below).

I cut it out so you can see:

(click to enlarge)

The 4th quarter import deduction to GDP (goods -1.91%, services -.05%) is the biggest deduction EVER, and potentially, heck, likely, massively over-estimated.

Hence their disclaimer:  “The Bureau emphasized that the fourth-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency.”

Specifically because the BEA made the biggest deduction in their history to the GDP growth rate; and specifically because fourth quarter sales were so historic in scope; we can expect that on February 28th, 2018, when the full rolled-up data is reviewed, there will likely be the biggest revision ever to their 2.6% GDP growth.  Initial estimate too low.

If you just use import history as a guide the actual 4th quarter GDP growth will end up at least a full one percent higher.  That would put the actual result around 3.6% which is exactly the landscape everyone thought it would be.

To answer the question: Did the BEA sandbag the number?  Well, you decide.  I think the evidence is clear they have been far too conservative with the estimate.


Addendum: To slightly defend the BEA from criticism, it should be noted that foreign manufacturers (think Samsung) fully anticipated a tough year for them in the face of President Trump’s policies to level trade imbalances.  There is actual evidence many Asian companies, specifically Samsung and LE, shipped massive amounts of parts into the U.S. in advance of this year.  Commerce Secretary Wilbur Ross spoke to this at Davos.

This entry was posted in Big Government, Big Stupid Government, Donald Trump, Economy, President Trump, Trade Deal, Uncategorized, US Treasury, USA. Bookmark the permalink.

215 Responses to Did Bureau of Economic Analysis Sandbag Report on 4th Qtr U.S. GDP ?….

  1. dufrst says:

    I buy what your saying Sundance and GDP will definitely be revised up to 3%, if not more. In any event 2018 will be a banner year and 2019 just as good if not better. 2020 will see things cool a little but Trump is able to stabilize trade, you can see sustained 3% growth for his entire first term and beyond. MAGA!!

    Liked by 6 people

  2. dufrst says:

    I buy what your saying Sundance and GDP will definitely be revised up to 3%, if not more. In any event 2018 will be a banner year and 2019 just as good if not better. 2020 will see things cool a little but Trump is able to stabilize trade, you can see sustained 3% growth for his entire first term and beyond. MAGA!!

    Liked by 2 people

  3. AsksTooManyQuestions says:

    I learn so much here. I thought that number seemed low but, of course, I couldn’t find any other news source that was either curious about it themselves or able to explain why it seemed so low.

    Thanks for an explanation that is both educational and understandable.

    Liked by 7 people

  4. hitrestart1 says:

    Excellent, informative, well-researched article. Thank you, Sundance!

    Liked by 4 people

  5. backseatdog says:

    In my area there wasn’t an after Christmas sale at all. Most of the stores were out of stock even before Christmas. Some stores the shelves were bare. Out of state license plates from 5 states in the parking lots.People everywhere. Parking lots shammed full. Somebody cooking the books on this.

    Liked by 9 people

  6. ALEX says:

    I like to listen to Larry Kidlow on saturdays 10-1pm live and he mentioned it will be revised. The numbers are extremely positive all,the ways around now and going forward…


    Then we have the second quarter revised up and look at the original number…Sounds familiar


    Gross domestic product increased at a 3.0 percent annual rate in the April-June period, the Commerce Department said in its second estimate on Wednesday. The upward revision from the 2.6 percent pace reported last month reflected robust consumer spending as well as strong business investment.

    Liked by 5 people

  7. Eric C. says:

    I think Sundance is spot on, although there is at least a reasonable explanation for their conservative estimate albeit a little overly conservative.

    I’d rather them keep upgrading Trump’s growth as opposed to the constant down grading the previous guy’s numbers. Yeah, it’s a little bummer for the SOTU, but better than getting a first estimate at near 3% for 2017 and then having it taken away.

    On a side note, depletion of inventory is good! Solid sales numbers.

    Liked by 2 people

  8. Plain Jane says:

    Oh my gosh! I understood everything SD stated. SD you make things so clear and understandable even for someone like me who would never have clicked on anyone else’s explanation of this other than Larry Kudlow’s.

    Liked by 8 people

  9. waicool says:

    Every monthly report during obambams admin was adjusted Down after initial reporting. It appears every monthly report during trumpsters admin will be adjusted Up after initial reporting. Why am i not surprised?!?!?

    Liked by 4 people

  10. Mist'ears Mom says:

    Thank you for explaining this so well Sundance. I saw the original report @ 2.6% and thought immediately-no way, something is off. Well it is off and yes it was done on purpose to make it look like our booming economy and GDP growth that is only because of P. Trump is well – really not so great. They are trying to compare him to obongos non-great economic gdp growth. So sad.

    Liked by 3 people

  11. gymcy81 says:

    a silver lining ?
    …the ‘conservative’ gdp under reporting at this time, in part, helps to control the public messaging such that the economy does not over heat, inflate, and then spur interest rate increases to slow it back down (including savings. mortgage, and borrowing rates for companies).

    When growing up, it is a tough, healthy balancing act to find amongst the lean muscle and/or flub (on the bones, and in-between-the-ears. )

    the membership of the ‘bureau’ may, or may not, have considered thinking ahead or some other untold narrative to sell, or mis-sell.

    I do not know


  12. gymcy81 says:

    a silver lining ?
    …the ‘conservative’ gdp under reporting at this time, in part, helps to control the public messaging such that the economy does not over heat, inflate, and then spur interest rate increases to slow it back down (including savings. mortgage, and borrowing rates for companies).

    When growing up, it is a tough, healthy balancing act to find amongst the lean muscle and/or flub (on the bones, and in-between-the-ears. )

    the membership of the ‘bureau’ may, or may not, have considered thinking ahead or some other untold narrative to sell, or mis-sell.

    That is o.k., like whole milk that includes cream (truth), if left unstirred, the cream rises to the top. If stirred, it stays mixed within (the agitators, spinners (mis)role).
    Like cream, the whole truths do rise to top, over time.
    Patience is a virtue, as well are fortitude, prudence, justice, and temperance.

    I do not know


  13. gymcy81 says:

    a silver lining ?
    …the ‘conservative’ gdp under reporting at this time, in part, helps to control the public messaging such that the economy does not over heat, inflate, and then spur interest rate increases to slow it back down (including savings. mortgage, and borrowing rates for companies).

    When growing up, it is a tough, healthy balancing act to find amongst the lean muscle and/or flub (on the bones, and in-between-the-ears. )

    the membership of the ‘bureau’ may, or may not, have considered thinking ahead or some other untold narrative to sell, or mis-sell.

    That is o.k., like whole milk that includes cream (truth), if left unstirred, the cream rises to the top. If stirred, it stays mixed within (the agitators, spinners (mis)role).

    Like cream on top of milk, the whole truths do rise to top, over time.

    Patience is a virtue, as well are fortitude, prudence, justice, and temperance.

    Keep up the good works. James 2:22

    Love thy neighbors. Matthew 22

    I do not know


  14. SeekerOfTruth says:

    Thanks Sundance for the political view of the report. I gave a non political view in the Pres thread. And I pointed out the massive increase in imports as affecting the final number a lot.

    Are the BEA (GDP report) and BLM (Employment report) political? Yes very much so.
    Both the last labor report (BLM and the BEA (GDP report) used massive fudge factors to tank both reports. Hopefully they will be revised up in the next report but that is after the initial numbers are out and they affect the market perceptions more.

    For Obama they fudged to boost the key reports.
    For Trump now the last two major reports they have obviously tanked some.

    Trump is advertised politically as the
    Jobs President (thus tanking the labor report)
    and the Growth President (thus tanking the GDP growth report)

    BEA and BLM employees are almost all Democrats.

    Fake Polls to tank sentiment.
    Fake economic data to tank economic perceptions.
    Politics is a game of perception and unfortunately most of the perception vehicles are controlled by liberals.

    Liked by 1 person

    • yzest5121 says:

      John70 – – – the incentive was to avoid the tariffs Trump promised and were anticipated post-election. Otherwise there is no incentive to over-import parts and pay to store them here in the US.


  15. Ivehadit says:

    In the long run this can actually help our mighty president. Psychologically it tamps down all the incredible economic winning so the battered conservative people can digest it and not be too afraid that things are “too hot”. There'[s an old adage in the investment world: people take out of the markets what they think they deserve. That can apply to all our winning! 🙂 We have to let some people catch up to “deserving to have lots of winning!


    Liked by 1 person

  16. MAGAbear says:

    This is kind of what I thought was going on. People get the idea that “Buy American” is a good thing but only look at price when actually purchasing things. I needle the purchasing department where I work over this: we put “Made In USA” stickers on all the products we ship out but buy all kinds of supplies made in China or Mexico because they’re cheaper. The irony that if our customers did the same thing we would be out of business is lost on them.

    Liked by 2 people

  17. It only goes to show that there is no agency uncorrupted by the Obama/Clinton/Uni-Party Machine. The Perma-Blob Cartel must be smashed.

    Liked by 2 people

  18. The Boss says:

    Imports for the holiday buying season – especially from China – are received in the US long before. Like in Q3. Anybody in the import business knows this.

    Liked by 1 person

    • Aguila2011 says:

      Who does the BEA report to? Wilbur Ross? Mnunchin? Well, whomever, these moles have just poked their heads out of their burrows and need to get their heads whacked, but good! Then kick them out on their butts sans benefits.

      Liked by 1 person

  19. pyromancer76 says:

    If the Bureau of Economic Analysis — and their head and employees — are found to be stupidly and purposefully wrong, then fire them. Absolutely, You’re Fired. More deserving Americans — those who are expert (not stupid) — are wanting to take those jobs.

    By the way, I am willing to call the present employees stupid rather than biased. This might prevent them from attaining any other job at their current level of employment. Oh, and some other terms for their letter of recommendation (or comments upon a check from a future employer) besides stupid — incapable, brainless, confused, dense, dopey, feeble-minded, senseless. I am certain there are many more adjectives that will endear them to future employers. Let them learn their lesson.

    Liked by 1 person

    • Aguila2011 says:

      What? I say both stupid and biased. You are grading the President’s economic results and you can’t even be in a realistic zone rather than posting an “outlier” scenario? It was done purposely and because it was political it was stupid. So both IMHO.

      As for letter of recommendations, what letters of recommendation? Never heard of them.


  20. keeler says:

    Ultimately, government statistics won’t overshadow the extra $1,000 in someone’s pocket. Or that individual’s new job. Or new house. The things people can see, touch, and feel are what matter.

    Liked by 1 person

  21. Summer says:

    Thank you for your analysis, Sundance.
    There is no doubt the BEA is playing the perception game before the SotU address.

    Liked by 2 people

  22. nuthinmuffin says:

    there are always two revisions after the initial and they will come after the sotu…convenient eh?

    Liked by 3 people

  23. freepforever says:

    2009-2010 had four instances of BEA’s exports decrement being more negative than -1.96 points.

    2008-2009 had five instances of BEA’s exports contribution being positive (I don’t understand how that can even happen), in one instance almost 6 points.

    I think the GDP figure will get revised up to just above, just at, or just below 3.0% after the Feb. March revisions, and I don’t think BEA is sandbagging as much as the rest of the govt. (Census Bureau, etc.) is sandbagging the underlying figures. See this example for retail sales during 2016:



  24. jparz says:

    Very well written and explained. 👏
    Thank you!

    Liked by 3 people

  25. wheatietoo says:

    To answer your question, Sundance…Yes, it looks like that is exactly what the BEA did.
    They sandbagged their report.

    Thanks for digging into the weeds on this for us.

    Funny how they were so unrealistically ‘optimistic’ with their GDP reports for the Obamaconomy.
    And yet now…they have developed this new conservative reserve, at a time when their previous level of optimism would actually be warranted.
    I smell a rat.

    Liked by 3 people

  26. Robert Conquest’s Three Laws of Politics:
    1.Everyone is conservative about what he knows best.
    2.Any organization not explicitly right-wing sooner or later becomes left-wing.
    3.The simplest way to explain the behavior of any bureaucratic organization is to assume that it is controlled by a cabal of its enemies.
    And 4. After eight years of Obama, Bureaucrats can’t even count anymore.

    Liked by 2 people

  27. Steve Jenkins says:

    These government clowns remind me of the Duke brothers trying to corner the frozen orange juice market.


  28. snailmailtrucker says:

    Donald J. Trump is Destroying Every Past Politician by accomplishing what they all say Can Not Be Done Economically….in Just 1 Year ! The Economy is Roaring and that shows exactly what Losers the Politicians ALL Are !
    and besides….we all know the Democrats/Liberals/GOPe/DEEP STATE are….

    Liked by 1 person

  29. mariner says:

    Sundance, that’s far too complicated.

    The real answer is, “How much would you like it to be?”

    I haven’t believed government numbers about anything for over twenty years. Only polls are less honest and transparent.


    • Aguila2011 says:

      In the past, politicians accepted the game playing with statistics, but as CEO of America, Trump is less likely to put up with that crap. I think he will ask for some changes in that administration. He wants and needs real info. And he hates fake news!


  30. rashomon says:

    GDP is just one blip in our ability to measure PDJT’s success. Don’t forget that most government agencies haven’t been audited ever! The underground market supports how much of our GNP? Catherine Austin Fitts has been complaining about this since the 1980s. Finally, finally, people must be feeling free to join her efforts to inform the public without being “disappeared”.



  31. Frank B says:

    The swamp is still strong and still anti-Trump. Forget them, instead read the book so Pro-Trump that even Reddit (and sub T-D) banned it, “KEK II: Trump year One, Hillary year None” (JUST RELEASED 2018), the sequel to the bestseller, “KEK: The Rise of Donald Trump”.


  32. zaq123 says:

    If it is true that they purposely manipulated the data to downplay the success, then every single one of them, needs to be walked out the door and put on the street. Perhaps one of the biggest problems the people have with the government is that, government employees keep their jobs and their pensions, even when they’ve done things that would get a private sector employee put on the street in the blink of an eye. Lois Lerner and the VA being prime examples.


  33. StuckInBlue says:

    Look at it this way: There’s no reason for the media to push the Fed to increase interest rates with a measly 2.6% GDP increase, right? Where’s the proof of inflation they need? (snicker, snicker)

    Liked by 1 person

  34. Realist says:

    In the CORRUPT UNDEMOCRATIC Obama REGIME era growth figures were always too HIGH then had to be reduced later. This was because the SHEEPLE only remember the first figures they are given, The same logical reasoning applies to these figures they want you to think the TRUMP ECONOMIC MIRACLE is slowing down so thats why they are giving REDUCED figures first and the REAL ones later when nobody will be looking.

    Liked by 1 person

  35. daughnworks247 says:

    I’m furious about the low estimate. Biz relies on these estimates for forecasting.
    The Atlanta Fed, NY Fed, kept revising number upwards for 4th quarter, remember?
    They started at 3.2% forecast for 4th quarter, then went to 3.6, 3.7. Finally, they WOULD NOT give President Trump 4% and came out with a forecast of 3.98%, like a stick in the eye.
    Look, when you mess with federal numbers, which are supposed to be reliable, it kills the credibility of the USA and these agencies. We need accuracy, not a political ploy.
    Momma’s MAD!!!!!!!!!

    Liked by 3 people

    • yzest5121 says:

      I live with Momma . . I can vouch for the fact that she is PISSED!

      The proof of political motives is the comparison with the Obama quarterly GDP numbers . . . according to published reports — for 8 years — every Obama QGDP was revised DOWNWARD. In other words, the Obama-installed apparatchiks dutifully published inflated statistics which were knowingly wrong to influence the public perception of Obama’s economic policies. Implicit in the purposely inflated numbers, is an ideological worldview that views private capitalism, independent investment as both wrong and a threat. It accepts the communist/socialist dogma that government control, central state planning is “good for the people.” To advance (“progress”) that goal, government-controlled statistics that influence (“control”) the private capital markets are an essential tool for the insidious extension of tentacles into private enterprise.

      That it continues, in reverse, in the Trump Administration should hardly surprise anyone. Rooting out the scum at the 4th level of bureaucracy is hardly at the top of the list of a President like Trump. There is way to much important stuff to do. In contrast, Obama and the apparatchiks specifically went to the 4th level of bureaucracy to plant their operatives knowing that this is how statism persists even as administrators change . . . and we see it in the GDP.

      Think of how that deflated number will affect the markets as it sits out there until February 28th when the BEA gets around to revising it up. Las Vegas money says the over/under is a revision up of 1%. My bets are, eventually, even higher.


      • Doc Moore says:

        I hope you are wrong, but I share your concern, primarily about how foreign investors will interpret this BEA lie. It seems transparent enough, in view of the BEA’s admission that the number is BS…I think the world will ignore it. The Socialist Trump haters will however, use it to attack Trump’s State of the Union.


  36. Pete de Leon says:

    Bureaucrats at BEA should refrain from releasing half-baked economic stats that gives ammunition to #Liberal economists to spin their views.

    Liked by 1 person

  37. sbScott says:

    Because of changes to the tax law, companies may have shifted income into 2018 and expenses into 2017. The higher 2017 tax rate makes expenses more valuable. A lower 2018 rate makes income more valuable in 2018. This shifting of incomes and expenses is not difficult to do. This would case a lower overall GDP for Q42017 is this was the case.

    We replaced a roof on a property in the fall of 2017 and wrote a large check (16K) to the roofing company in October. In December we were going though our accounts and found the check had not been depostied. We called the roofing company and they said they got the check and confirmed our account with them was settled. Well, guess what cleared the bank on the first business day of 2018!? As Q would say, ‘no coincidences’.

    Liked by 1 person

  38. Looking at this in a little bigger picture and over 8 years of gdp data I drop the highest and lowest to measure 6 obama years @ 2%. What obama, the professor, failed at was when the gdp went up for 2 years it would go way down the next.
    2009   -2.8%
    2010    2.5%
    2011    1.6%
    2012    2.2%
    2013    1.7%
    2014    2.6%
    2015    2.9%
    2016    1.5%

    What Trump has done with regulations and tax cuts is to provide fertile and stable ground for growth. Repatriation = goods produced in U.S. now +Bigly+ to GDP and less purchased from overseas or Mexico/Canada -minus- to GDP. Sundance did not go further, but gave it a mention, into how greatly this changes GDP but that was not the focus of the article.

    Liked by 1 person

  39. I can’t wait to see how the census turns out when ICE agents are allowed to accompany census takers!

    Liked by 3 people

  40. yy4u says:

    Interesting, but the minute I heard the report, I was dubious. DeepState manipulating good data on Trump the way the Deep State manipulated bad data on Obama. I hate being a conspiracy theorist but when it looks like all aspects of your government are controlled by one party (Democrats) and they (FBI) take over Las Vegas and no information comes out and they (FBI, DOJ) work to prevent the other party’s candidate from winning and when he wins then “conspire” to get him out of office, when they (IRS) shut down groups (tea party) antithetical to the single party rule, when judges (9th circuit) circumvent the legal authority of the president, then it sure as h3ll looks to me like we are no different than the USSR except they haven’t gotten around to killing people yet. Opps — forgot about Waco and Ruby Ridge and the shoot out in Oregon. This is scary stuff folks. I sound like a broken record but 100 years ago a small group of Bolsheviks took over Russia using violence (antifa, BLM) and protests (womens march) and proceeded to govern with an iron fist. A century has passed, so there’s no need for Gulags — put Dinesh D’Souza under House Arrest, or mass executions (just destroy the reputations via media and accusations of those who oppose you — Roy Moore, Herman Cain, etc., etc. etc. I’m gettin’ scared.

    Liked by 1 person

  41. Doc Moore says:

    Timing plays a role in deception. Generally, the so-called Democrats are not good at it. Let’s hypothesize that this transparent BEA lie is timed to precede the State of the Union to make Trump look bad, and to interface with the NAFTA talks to leverage that agreement in favor of Mexico. It is one more agency that needs an enema, but first priorities must be to cleanse the JD of the many traitors there. #ReleaseTheMemo


  42. JPinBalt says:

    Look, In the old days the government would release statistics like GDP (GNP back then), CPI, crop harvests, and there were leaks of final number so speculators could trade on the info. A lot of money could be made knowing the secrete numbers in advance given the bond market would react to high or low CPI numbers or GDP growth, commodities too on how bad a drought was from USDA. Similarly, there was a row of pay phones at the SEC when firms filed their 10Ks and 10Qs so people could contact brokers and place trades. Instead of keeping the GDP or CPI numbers better locked up before the press releases, they decided to release numbers earlier, preliminary, advanced, revised, final, and the first numbers out are highly inaccurate.

    GDP has had anemic growth because of Obama administration policies (e.g. literally millions of people dropping out of the labor force to get free PPACA Medicaid, regulation), low productivity growth despite all the high tech gadgets, and slowing population growth, the new 2 is the old 4.

    As far as 4th quarter estimates and imports, remember GDP is in dollars and the dollar has been falling in value so all that imported stuff costs more. There is no conspiracy to fudge the numbers for low growth, the work of hundreds of people go into this and no single person has control of the final numbers to tweak them. You will have to wait for better final revised numbers/estimates to be released.

    The funny stuff in NIPA is more conversion from nominal to real and methodology for calculating inflation for things like services, or housing costs in the CPI, as opposed to the number and price of a new car or a box of cereal, plus items priced are not homogeneous over time, e.g. it is easy to calculate the number of hospital births for the consumption component of GDP on medical services, now for value and how much it costs, it is not a simple hospital bill paid out of pocket like the 1960s for good and accurate real and nominal numbers, we have employer and employee paid insurance and out of pocket costs for delivering a baby and the short hospital stay, getting down to the actual price is massively more complicated as opposed to doing a survey of how much a hair cut costs and how many were consumed for that portion of GDP, plus really comparing apples to oranges for what services you get at the hospital when consuming birth services, e.g. they have monitors and incubators now which did not come with the package purchased years past. Eisenstein would have difficulty with how some of the GDP numbers are calculated, but it all seems quite simple when explaining to a college economics class.


  43. Chris says:

    It matters not; the Stock Market will react on Feb 28th or Mar 1, 2018. Good news is good any time.


  44. spren says:

    Thanks so much Sundance. I’ve never heard this kind of clear articulation before about these kinds of reports. I also was very skeptical when I first heard the release as I had expected at least 3.5% growth.

    One question I have that maybe someone can elucidate is regarding the the BEA’s analytical approach that imports are subtracted from the numbers because they don’t really provide any economic benefit to our nation. I would suggest that when we are able to purchase these imports for lower cost than if we had bought their domestic versions, then that leaves us with disposable income which can then be used to buy additional goods, many of which might be produced domestically.


    • JPinBalt says:

      It is not BEA subtracting Imports since it does not “provide any economic benefit to our nation” The NIPA accounting existed before BEA and their development in economics starts in the 1800s because the sum of all spending on final goods and service has to be the same as the sum of all incomes, Say’s Law, and Say did not take well to Napoleon propaganda and police state. Other countries use the same methodology. Actual GDP accounting did not begin till the Great Depression and all prior are bad estimates, there is good data on the price of corn from 1900, but real bad bad data on the quantity produced.

      For your question …
      GDP stands for Gross(Total or Aggregate) Domestic Product. It is a measure of all the final goods and services produced by a country. It is mainly goods sold/purchased, but also goods produced but not sold so we include change in inventory levels. People derive income from producing a car irrelevant to whether it is sold in US, it is added to inventory at a dealership and unsold, or sold in a foreign nation. Exports are part of US production and income and clearly part of GDP. GDP=C+I+G+X where X is net Exports = Exports minus Imports. Now, Consumption Expenditures are the biggest component of GDP and includes spending say on US products or foreign imports, that US made Ford F150 just purchased and the BMW made in Germany the same by a US consumer are part of Consumption spending. Clearly the imported BMW is not part of US output or US incomes. (Ownership is irrelevant, that Toyota Camry produced in Kentucky is part of US GDP inasmuch as a Ford F150 pick-up truck,)

      Exports clearly have to be included in GDP and Imports taken out by definition of GDP.
      If we did not do this, the NIPA identity would not add up where sum of citizen income in a country equals the sum of spending on purchasing output produced in that country. It is an accounting identity.

      NIPA accounting has nothing to do with some subjective “economic benefit to our nation” with the exception of illegal goods not included. It took me a while years ago to figure out why GDP suddenly jumped up a massive 10.8% in 1934 – it was because prohibition ended and the legalization of alcohol putting liquor stores and bars back in the numbers.

      What you say, “I would suggest that when we are able to purchase these imports for lower cost than if we had bought their domestic versions, then that leaves us with disposable income which can then be used to buy additional goods, many of which might be produced domestically.” is entirely correct. The Mercantilist political economy of the 1600s and 1700s where Imports were bad was entirely dispelled in favor of free markets with the publication of Adam Smith’s Wealth of Nations in 1776, and then by mathematical proof by David Ricardo in 1817 in On the Principles of Political Economy and Taxation (1817) with comparative advantage. There has been no change in the bottom line on free trade being good since then.

      Think about if domestically produced oil costs $400 a barrel and imported oil costs $100 a barrel. We can import oil and drive around cars at say $4/gallon, now we can ban oil imports or tax them out of existence with high tariffs – and what would happen? A bunch of domestic oil jobs, a boom for that artificially protected from free markets industry, producers win and consumers get screwed by paying say $20/gal for gas, net US impact is negative, it is easy to draw the gains and losses on a graph. Plus it gets worse than that since foreigners selling us the oil prior can not spend some of that revenue on our exports or there is retaliation like against the stupid Smoot-Hawley tariff of 1930 which made things worse trying to fix things, or more the same for the tariff of Abominations screwing Southern consumers in favor of politically connected Northern producers which was a seed to the Civil War.

      Yes, the imported grapes grown in Chili this week and purchased by US consumers is an Import and not part of US GDP but is Chili’s GDP. Chilean grape farmers get income and it is production withing the country of Chili. Now it is winter time in the US and farmers in the US would have to grow grapes in greenhouses and would not be surprised if domestic US winter production costs for grapes would be $50/lb+. Placing tariffs on imported Southern hemisphere grapes would greatly increase income of US winter grape producers and US winter grape consumers would be screwed, again with a net negative effect where gains by domestic producers are smaller than losses of US consumers.via higher prices.

      It made me think of confirmation bias when I saw the posts here on how the lower than expected GDP numbers were some conspiracy plot and fudged to make Trump look bad. That is about as true as Russia rigging the election, or the low unemployment numbers are BS to make Trump look good. Like “see it when I believe it” as opposed to “believe it when I see it.” and that confirmation bias works both on the left and right. There is plenty of evidence of things like Nellie Ohr in cahoots with DOJ helping write the fake opposition research DT dossier used for the illegal FISA warrant since she was an employee of Fusion, but for GDP numbers to be fudged for political reason there is zero evidence. (On the other end there is plenty of evidence that Gavin Schmitt at NASA GISS fudges the temperature numbers as propaganda to boost CO2 AGW lie reporting fake temperatures with his hand designed mathematical model cooling the past with revisions.) As I mentioned/posted prior, no person at BEA can fudge the numbers, the hundreds of people working on GDP follow a methodology which is set and not fungible, any changes to how to do the math are announced ahead of time so people can comment and done overtly. It is a joke to think the last GDP numbers are fudged. Also the Government started putting out GDP numbers at an earlier date in advance, preliminary estimates subject to revision, crap numbers first out to prevent speculators betting on financial markets with inside info on the numbers. I have been reading these GDP numbers for 25 years.

      As far as the large Imports number contributing to a low 4th Q GDP number, well that is simple, the dollar has plunged in value immediately increasing the price of Imports, if this continues, same could happen to 1st Q GDP with a large negative import contribution. US GDP is measured in US prices and dollars. The BMWs spit out of the factory in Munich and imported to the US from Germany cost the same in Germany in Euros, but immediately go up in price in dollars when the dollar falls in value, the quantity being imported or exported reacts much slower to price, The Import number for 4th Q GDP which will be later revised is no big surprise.


  45. bkrg2 says:

    Great analysis Sundance – I agree, the math does not add up! Understated by a minimum of 50 basis points by the most conservative estimates, possibly a full point under called…

    From what I can recall, if feels like the first estimates under Obozo where always overcalled, then revised down. Looks like the opposite for Trump. I guess that’s just a coincidence? /sarc


  46. Kevin says:

    I am sure President Trump will have his economic staff go thru the numbers and compare the methodology for the initial numbers to the methodology used for the Obama years. If in fact they purposely reduced the GDP prediction by changing the methodology President Trump will call them out for it. The math is complicated but for someone familiar with how the predictions are officially made, if the methodology was changed it will be very clear. My guess is the numbers reported will be actual number collected to the point the report was compiled and ZERO additional amounts were added in anticipation of what will be consumed until the end of the year. They worked the numbers to ensure GDP came in under 3%. If that happens I hope they are removed for what they did.


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