Back in May, I penned a missive entitled “If You Don't Like It, Change It” which discussed the pending changes to the GDP calculation by the Bureau of Economic Analysis (BEA). To wit:

“Now, for all of you playing the home version of “Nail That GDP Number,” it was just a couple of years ago that the BEA decided that the economy was not growing fast enough and “tweaked” the GDP calculation and added in “intellectual property.” Those adjustments boosted GDP by some $500 million.

The problem with adding “intellectual property” is that the cost of a new cancer drug treatment, a Hollywood movie or a new hit song is already included in the value of product brought to market. In other words, since production is what drives economic growth, that value is captured in the quarterly analysis of business investment, spending, etc.

However, since those tweaks did not boost the economic growth rate as much as was hoped, the BEA has now wondered if maybe their statistical modeling is wrong and will be making adjustments once again to boost economic output in the U.S.”

 The chart below shows both sets of adjustments to real, inflation-adjusted, GDP. As you will notice, despite the BEA's previous adjustment, GDP growth was substantially weaker in subsequent years. However, you will also notice that the first two-quarters have seen a rather strong uptick in growth. 

The latest adjustments to GDP changed the first quarter growth rate from a -0.9% to a positive 0.6% with the second quarter rising strongly to 2.3%. The problem is that the upward revisions to economic growth for the first half of this year does not particularly “jive” with what is happening in the “real economy.” 

While the BEA is suggesting that previous weakness in the economy was simply due to “residual adjustments” lingering in the data, that does not explain the weakness in other areas of the economy.