4Q-2010 GDP Revised Down to 2.8%

Last month, when the advanced estimate of 4Q2010 GDP was released, I believed that the 3.2% GDP increase was too low.  Historically, in an economy growing faster in the second half of the quarter – the advance estimate has been too low.

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.  The “second” estimate for the fourth quarter, based on more complete data, will be released on February 25, 2011.

The Bureau of Economic Analysis (BEA) must use educated guesses for the data it does not have.  Now this second release of 4Q2010 revised GDP downward from 3.2% to 2.8%.

The downward revision to the percent change in real GDP primarily reflected an upward revision to imports and downward revisions to state and local government spending and to personal consumption expenditures (PCE) that were partly offset by an upward revision to exports.

The table below compares the 4Q2010 advance and 2nd estimate to 3Q2010.  In a weak economy, small changes to government spending can introduce significant headwinds – how big will this grow in 2011?

The question here is did the BEA guess too high in preparing the advance estimate? The miss on PCE seems to be an overestimation of spending by the BEA.

Is there other anomalies occurring as the BEA closes out 2010 GDP as they are reconciling accounts?  Punters will be searching for the answers – but it may be as simple as book keeping reconciliation.

Related Article

Advance GDP Estimate for 4Q/2010 has Disturbing Undercurrents  by Rick Davis

Fourth Quarter GDP Up to 3.2% – Likely to be Revised Further Up  by Steven Hansen

Officially Out of Recovery and into Expansion – NOT  by John Lounsbury

Normalized GDP – The “Real” Growth by John Lounsbury