A year ago, Jeff Frieden and I forecast (along with others) in Politico Magazine a boom in output. In light of today's third release for 2014Q3 real GDP, clocking in at 5% SAAR [1], it's reasonable to ask, are we there yet?
Figure 1 depicts the upward revision in GDP from advance to final, in the context of the last two years.
Figure 1: GDP, in billions of Ch.2009$, SAAR, 3rd release (bold blue), and advance (red). Macroeconomic Advisers tracking forecast as of 12/23 for 2014Q4 (dark blue square). Vertical dashed line at maximal estimated impact on GDP growth according to Macroeconomic Advisers (2/20/2014). Source: BEA 2014Q3 3rd and advance releases, and Macroeconomic Advisers.
Notice that there is a slowdown in 2013Q2 when Macroeconomic Advisers indicated the maximal impact on growth. (Notice that some observers have argued that since the growth impact was only estimated for two quarters, then the sequester had minimal impact. Of course, those with a familiarity with math recognize that a transient impact on growth has a long term impact on the level unless the impact on growth is offset.)
Where does a lot of the growth revision come from? The answer is in great part — services.
Figure 2: Services consumption, in billions of Ch.2009$, SAAR, 3rd release (bold blue), and advance (red). Vertical dashed line at maximal estimated impact on GDP growth according to Macroeconomic Advisers (2/20/2014). Source: BEA 2014Q3 3rd and advance releases.
The estimates of services consumption have been particularly problematic with the advent of ACA implementation (which by the way seems to betaking uninsured rates to new lows). But both health and non-health services consumption were revised upward.
One prediction we made was that investment would surge, given corporate profit levels and the decrease in policy uncertainty. This has come to pass only in part.
Figure 3: Log nonresidential fixed investment to GDP, both in billions of Ch.2009$, SAAR, 3rd release, rescaled to 1986Q1=0 (blue, left scale), and policy uncertainty index (pink, right scale) Source: BEA 2014Q3 3rd release, and Baker, Bloom and Davis.
