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1/ You're probably seeing a lot of "Q3 GDP Grows at a Record Pace!!!!!" headlines today
a thread on what that record figure really means
a thread on what that record figure really means
2/ The number you are likely seeing tossed around represents an ANNUALIZED increase of +33%
A more useful figure: Q3 output was about +7.4% higher than Q2 output
So where did the 1st number come from?
A more useful figure: Q3 output was about +7.4% higher than Q2 output
So where did the 1st number come from?
3/ That crazy high number shows how much GDP would grow or shrink if that rate was sustained for a full year
annualized figures are helpful when comparing data across historical periods
but can be misleading when looking at short term changes
annualized figures are helpful when comparing data across historical periods
but can be misleading when looking at short term changes
4/ For example, if you got a $1,000 bonus for the month of October
you probably wouldn't say "I got a $12,000 raise on an annualized basis!" cuz you know it's not actually a sustained bonus
same for GDP numbers
you probably wouldn't say "I got a $12,000 raise on an annualized basis!" cuz you know it's not actually a sustained bonus
same for GDP numbers
5/ The economy didn't actually grow by nearly a third in three months
but the annualized formula is always going to paint a more optimistic picture when GDP grows
ESPECIALLY after the massive contraction in Q2
but the annualized formula is always going to paint a more optimistic picture when GDP grows
ESPECIALLY after the massive contraction in Q2
6/ For a little context the economy today is still -3.5% smaller than it was at the end of last year
and for even more context, -3.5% is roughly the same level the economy was operating at during the worst of the last financial crisis
and for even more context, -3.5% is roughly the same level the economy was operating at during the worst of the last financial crisis
7/ You'll see a lot of that +33% number today
but take it with an annualized grain of salt
but take it with an annualized grain of salt
