Posts Tagged bureau of economic analysis
On Jan. 20, 2009, the national debt stood at $10.627 trillion—or $34,782 for every man, woman and child. As of Tuesday, it had reached $16.435 trillion, or $52,139 for every American. The public debt was equal to 40.8% of gross domestic product on Jan. 20, 2009. By the end of last year, it had reached 72.8% of GDP and is forecast by the nonpartisan Congressional Budget Office to hit 76.1% this year.
Mr. Rove includes a paragraph on the debt situation:
Hmmm. The key phrase is “public debt.” We economists call it the government debt. And, like most issues related to government finance, it’s messy.
Boring Stuff: Details of the Debt
The government debt is made up of two big parts: the federal government debt and total state and local debt. As of January 1, 2012 (effectively the end of calendar year 2011), the federal government debt was $10,810.6 billion. State and local debt totaled $2,985.0 billion. The sum of those two figures is $13,795.6 billion. Both of these figures are from the Federal Reserve database as maintained by the Federal Reserve Bank of St. Louis in their FRED database. Total government debt as stated by the Treasury department is $15,582.1 billion (also downloaded from FRED). My guess is that the Treasury number includes debt owned by banks and other financial institutions, while the Federal Reserve figures are government debt in the hands of the nonfinancial public (including nonfinancial businesses).
GDP numbers are from the Bureau of Economic Analysis. There is a direct link from that page that downloads GDP totals (real and nominal, annual and quarterly) directly as an Excel workbook. If only Treasury would learn from BEA and BLS.
So here’s the result:
|Federal Government Debt as percentage of GDP (Federal Reserve)||71.71%|
|State & Local Government Debt as percentage of GDP (Federal Reserve)||91.51%|
|Federal Government Debt as percentage of GDP (U.S. Treasury Dept.)||103.36%|
Mr. Rove apparently used the first figure. But that number excludes federal debt held by financial institutions. Let’s assume federal debt held by financial institutions is equal to the difference between the Treasury and the Federal Reserve numbers for total government debt:
|Treasury – Fed||$1,786.47|
|Federal Reserve govt. debt plus Debt Held by Banks||$12,597.08|
|Total Federal Debt/GDP||83.56%|
The debt-to-GDP ratio is too high. The U.S. is not Greece or Italy — yet. But if we stay on the current path, at some point an auction of Treasury securities will fail in the sense that there will be no bidders from the private sector. The Fed could bail out Treasury by purchasing the entire new issue. But that is a policy choice that the Fed must make. The really scary part of all this is that nobody knows the debt-to-GDP ratio at which an auction will fail. There will be warnings, however. Watch for rising interest rates on TIPS (Treasury Inflation Protected Securities).
There was a hint of this in early 2011 when rates rose briefly (For a few months, all real interest rates were positive). This was interpreted as a sign that the markets were expecting economic recovery. A much more frightening hypothesis is that the rise in interest rates was caused by investors fleeing Treasury securities because of a perceived increase in risk. All we know is that the equilibrium interest rate rose and the equilibrium price of these bonds fell. As always, this could have been caused by shifts in either demand or supply. Assuming Treasury is reporting the yields on new-issue securities, the supply is completely controlled by the government. Therefore, demand factors as outlined earlier must be the determining factor. We can speculate all we want, but the interest rates will tell the story.
[Update Jan. 19, 2013, 15:45 GMT-8: I corrected several errors in the Excel workbook, added a new worksheet to accompany my new article on the subject, and improved several explanations.]
As always, my data and methods are transparent. You can download the Excel workbook for real interest rates by clicking here. And you can download the workbook for the government debt and GDP by clicking here.
Happy talk media today are whooping it up because real GDP grew by 2.5% in the third quarter. News flash: it’s the advance GDP estimate, stupid!
Don’t take my word for it. Read the first two paragraphs of the press release from the Bureau of Economic Analysis:
“Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.5 percent in the third quarter of 2011 (that is, from the second quarter to the third quarter) according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent.
The Bureau emphasized that the third-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3). The “second” estimate for the third quarter, based on more complete data, will be released on November 22, 2011.”
Prediction: this estimate will be revised downward twice — once at the end of November and a second time just as we’re about to welcome in 2012.
Friday the Bureau of Economic Analysis released the preliminary estimate of the first quarter, 2010, U.S. gross domestic product. The good news is that total production of goods and services grew 3.2% in that quarter (seasonally adjusted at an annual rate). For better or worse, nearly half that growth (1.57%) was caused by expansion of business inventories. I’m going to dig into the GDP numbers, an exercise that often puts readers to sleep. Hang in there – I promise it will be worth the effort.
Before I begin, there’s one important point to be made. This is the preliminary estimate for the first quarter. There will be two revisions released near the end of the next two months. Revisions are often significant. As several writers have discovered, basing significant economic analysis on the preliminary estimate can lead to wildly incorrect conclusions.
Caveat emptor. You have been warned. Read on at your own risk!
Far and away the most interesting data for the first quarter comes from the B.E.A.’s table 1.1.2 (“Contributions to Percent Change in Real Gross Domestic Product”). From that we learn that 2.55% of the 3.24% growth came from consumer spending. About 40% of that (1.15%) was attributed to growth in consumer spending on services. This is actually a good sign. It means that consumers are, among other things, going out to restaurants and beginning to purchase services they might have performed themselves a year ago. Not surprisingly durable goods spending contributed 0.79%, down sharply from the 2009 second quarter of 1.36%. The “cash for clunkers” program did exactly what economists predicted. It shifted consumer spending from future quarters into the second quarter of 2009. Mind you, this is a good thing. The economy needs more spending sooner.
Gross Private Domestic Investment
Far more problematic is the behavior of gross private domestic investment. Consumer spending stimulates output this year. Investment spending creates the new physical capital to increase output in the future. The overall contribution of gross private domestic spending was 1.67%. However, only 0.1% was from business fixed investment. The remaining 1.57% was growth in business inventories. Let’s dissect those numbers.
Business fixed investment includes nonresidential structures, nonresidential equipment and software, and residential construction. Nonresidential and residential constructions together reduced GDP by 0.73%. That means spending to build new structures fell compared to the fourth quarter of 2009. Blame this on the first-time homebuyer’s tax credit which shifted demand for residential structures into the last two quarters of 2009. However, these decreases were more than offset by increased spending on nonresidential equipment and software which contributed 0.83% to GDP. The net change in gross private domestic investment masks larger changes in the underlying components.
The 1.57% contribution of inventory growth has been hailed by many economists as evidence that businesses are rebuilding inventories anticipating higher future sales. Not so fast, folks. Let’s review J.M. Keynes. He pointed out that there are two sources of inventory change: planned and unplanned. Economic analysts are assuming the inventory increase was intentional. But suppose the change was unplanned. That would mean production exceeded spending. Remember, businesses have to plan production in advance of spending. When their demand forecasts are too high, production will exceed spending and inventories will rise. But that’s not a positive sign for the economy – in fact, it’s a negative because businesses will have to liquidate those inventories in future quarters.
Was the inventory increase planned or unplanned? I don’t know and I suspect many of the economists mentioned in the previous paragraph don’t know, either.
However, another B.E.A. table contains some valuable insights. Table 5.6.6B is the “Change in Real Private Inventories by Industry, Chained Dollars.” This table is in billions of constant 2005 dollars, not percentages. The growth in business inventories was $31.1 billion. As always, inventories in some industries grew while others shrank. The main positive contributions came from Manufacturing, nondurable goods industries ($10.3 billion), Wholesale trade, nondurable goods industries ($10.3 billion, no this is not a typo), and Motor vehicle and parts dealers ($23.1 billion). In other words, nondurables and vehicles were the source of the inventory growth. The growth in motor vehicle inventories is nothing more than rebuilding depleted inventories after the end of the cash for clunkers program. Don’t expect that to continue into future quarters. The two nondurable increases are largely a result of the increased consumer demand for services. (Remember, consumer spending on services includes meals eaten away from home. Restaurants hold inventories just like most businesses that make something. Consider this a bit of an anomaly in the national income accounts.)
Let’s not bother with foreign trade since exports and imports are mainly included to convert total spending into production. Instead, take a look at government spending.
The contribution of government spending to first quarter growth was -0.37%. You read that correctly. Government spending was actually a drag on the economy.
“Wait,” you’re saying. “What happened to the government stimulus program?”
Good question. Once again we can look at the details to see what happened. Federal government spending contributed +0.11% to GDP growth. But state and local government spending dragged GDP growth down by 0.48%. This lends support to the calls by several economists for the federal government to bail out state governments.
That’s the story. The news is good, but perhaps not as good as the media would have you believe.
 See, for evidence, the failure to spend economic stimulus funds from the ARRA program at a fast enough rate.
 I believe Paul Krugman has advocated this position, but I’m too lazy to look up the citation.
“Retail sales up 0.3% in February” is what you read in the headlines. In response, U.S. stock markets moved higher. Apparently the markets hope that consumers are finally starting to spend again. Consumer spending is about 2/3 of total domestic spending, so this is a big deal – if it’s true. Let’s spend a few minutes deconstructing that number.
First, this increase is the “ADVANCE MONTHLY SALES FOR RETAIL TRADE AND FOOD SERVICES” from the Census Bureau. The press release clearly states the margin of error is ±0.5%. In other words, the 0.3% estimate is meaningless. All we know with any confidence is that the actual growth rate is likely between –0.2% and +0.8%. Don’t bet the ranch on this estimate.
Second, and more intriguing, a good part of the February growth was caused by a downward revision in January’s estimate. The advance estimate for January was +0.5% with an error of ±0.5%. The revised estimate was +0.1% with an error of ±0.3%. Make January lower and February looks better. Are the numbers being fudged? Nah, folks in Washington D.C. would never do that.
Third, these figures are nominal numbers. While they are adjusted for seasonal variation, they are not corrected for inflation. Assuming inflation is about 0.2% per month (2.4% per year), the advance estimate for real growth is +0.1%. Anemic.
According to the Census Bureau press release, the advance estimates are based on a stratified sample of 5,000 retail and food service firms. The total number of these firms is over 3 million. While the sample covers 65% of the dollar volume, there’s a reason the margin of error is so high: 65% is quite a distance from 100%.
The chart below gives some perspective. This is based on inflation adjusted data from the Department of Commerce Bureau of Economic Analysis for January of each year.
 http://www.census.gov/retail/marts/www/retail.html . Accessed March 13, 2010.
 http://bea.gov/national/nipaweb/nipa_underlying/DownSS2.asp?3Place=N#XLS. Accessed March 13, 2010.