Thinking about fiscal policy dominates my time lately. Mostly my concern is with parsing the data in such a way to make sense of the various arguments out there about the proper course for fiscal policy. Recall that I doubt that anyone is willing to reduce spending by enough to balance the budget. So if we are to see balanced budgets at some point, the timing of that is a topic for another post, it seems likely to me that tax increases will be necessary. Anyway, those policy issues will be covered another day.
The GDP report for Q3 is out (available here) and it might seem good news. Q3 2013 growth is 2.8%, but it comes from inventory accumulation and that is not good. Firms added to inventories of goods which means they will need to produce less in Q4 so hiring may still be weak.
The official release of the advance estimate of Q2 GDP today was actually greeted with a sigh of relief. What does it say about the economy when at 1.7% rate generates relief? The relief of course is because it is not worse, but this number is subject to significant revision and so it may only be a temporary stay. I get asked on the radio all the time about economic recovery. The answer remains the same: there is recovery, but it is wholly inadequate to make people “feel” like recovery has taken hold.
Before the data is released I felt it important to get my take on GDP revisions out there. There will be the standard outcries about political manipulation of the numbers and this is really not the intent, nor the outcome, of this process. This article from Bloomberg.com explains the process a bit. This article does a little better (especially on the R&D front and it mentions economic history). The U.S. economy is dynamic and constantly changing. We can call it innovation or entrepreneurship or development, but at its root it is change. Change in the products and services made and changes in the processes used to make them. These changes require us to change how we account for different aspects of the economy over time.