The bar-lowering in the business press continues.
In the wake of today's disappointing news from the government on U.S. economic growth, an email from CNNMoney.com failed to properly describe reported second-quarter growth, and falsely characterized today's results as "solid":
Parsing the email, we'll start with "The U.S. economy expanded 2.3%."
No, it didn't. It expanded at an annualized rate of 2.3 percent, meaning that it really expanded by just under 0.6 percent.
That this is a frequently made error seen in the press doesn't make it any less forgivable, especially given that in this instance it comes from a site dedicated to the economy and personal finance.
The characterization of the result as "about as expected" is sort of correct on one level, but spectacularly incorrect on another.
It was sort of correct in that the consensus prediction, noted at Zero Hedge and Bloomberg, was 2.5 percent. That's below the reported result, but not to a major degree. That said, Moody's "High-Frequency GDP Model" at Economy.com, run by incurable Keynesian Mark Zandi, predicted a second-quarter result of 3.2 percent.
But CNN completely ignored something it could have characterized in a very few words, as the Wall Street Journal did in reporting that “The Worst Expansion Since World War II Was Even Weaker.” That's because the government revised GDP reported during the past three years significantly downward, as seen below:
The previous thirteen quarters were written down by a net total of 2.6 percentage points, reducing growth during that period from 2.2 percent (rounded) to 2.0 percent. This is clearly the most important GDP-related news of the day, because nobody that I know of anticipated the extent of the prior-year writedowns.
As a result, as Steve Eggleston at Hot Air noted, "real GDP of $16,177.3 billion (2009 dollars) was $110.4 billion (2009 dollars) lower than previously reported." In English, that means that the economy has been a bit smaller than we all thought for almost three years. That's a big deal, something that certainly was not "about as expected."
I've highlighted the third quarter of 2012 because it was the final quarter before the presidential election. The government's original estimate on October 26, 2012 was 2.0 percent, which eventually got written up by a half-point to the 2.5 percent seen above. Now, in one fell swoop, it's been knocked down to 0.5 percent. How amazingly convenient, 2-1/2 years later.
The drops are really worse than indicated, because, as has been noted in several places, the government's Bureau of Economic Analysis appears to have given in to the people who think that recent reported first-quarter results have been artificially low because of "residual seasonality." I explained why I believe the claim is bogus, and why "residual seasonality" is really a way of covering up the first-quarter impacts of taxes and regulation, in an early-June column at another web site.
Primarily as a result of incorporating "residual seasonality," this year's first quarter went from -0.2 percent to a positive 0.6 percent. Ignoring that change, 2012-2014 quarterly GDPs were reduced by 3.4 points, and annual growth during those three years fell from 2.37 percent to 2.10 percent. Additionally, the first quarter of 2014 went from -2.1 percent to -0.9 percent
As the Journal noted, these results are historically awful, making CNN's characterization of the second quarter's annualized 2.3 percent result as "solid growth" ridiculous. It's bad enough that I've occasionally seen 3 percent annual growth described as "robust" from time to time.
Calling 2.3 percent growth "solid" is complete rubbish, and looks like yet another attempt to make the "new normal" of economic mediocrity seen during the past six years acceptable to low-information voters. It's not.
Cross-posted at BizzyBlog.com.
