streettalklive.com / By Lance Roberts / Wednesday, July 31, 2013
On the surface the initial release of the first estimate for gross domestic product, for the second quarter of 2013, surprised to the upside coming in at 1.7%. This was significantly above the 1% consensus estimates and was greeted by flashing headlines of exuberance. However, the headline number was distorted by revisions going all the way back to 1929 to account for research and development (R&D) investments and pension deficits as part of the GDP calculation. This was the largest single set of revisions in the history of the Bureau of Economic Analysis.
The timing of this revision smacks of some poltical bias as we head into a debt ceiling debate and a rather contentious Congressional election in the coming year. The economic data has been inordinately weak since 2009 despite trillions of dollars of injections, bailouts, supports and monetary policy interventions. A quick change to the calculation and “voila” – a better economy. The problem, however, is that if you go and check your bank account there was not a sudden increase in the value to account for the stronger growth that has now magically appeared.
Despite the issues of the revisions, which I will cover in more detail in the near future, the revised data is now what I must work with when analyzing the strength and trend of the economy and its potential effect on investment portfolios.
The first chart below shows the difference in real (inflation adjusted) GDP pre- and post the revisions.