The Big Picture: Strange things are afoot with GDP
When the GDP number came out at 3.8% yesterday, I told my colleague I suspected there would be some revelation to suggest that the number was misleading, or unsustainable in some way. Well, it took me until a day later to find this from Barry Ritholtz who suggests not that the numbers are misleading, but they are in fact being gamed, possibly for political reasons:
Yesterday's upwardly revised GDP data is believable only if you accepty the premise that HOME PRICES WENT DOWN IN Q1 2005.
Otherwise, the data was gamed.
Follow the bouncing ball: The revisions to GDP inflation accounted for virtually all the net positive
revisions to growth.
How? The GDP implicit price deflator. For the quarter, it was revised downward from 3.16% to 2.89% (a drop of 0.27%). That accomplishes a neat little trick: By (artificially) reducing the rate of inflation, the BEA spikes real GDP growth by the same amount, and total GDP growth revised upward from 3.48% to 3.76% (rounded up to 3.8%), an increase of 0.28%.
The deflator was revised downward from an annualized 3.3% to 1.1%, an astonishing drop of 2.2%, and real housing growth revised from 8.8% to 11.5%, an incease of 2.7%.
Yet year-over-year housing inflation in the GDP is at just 5.2%. Cranking that number up to reality raises inflation, lowers GDP, and spoils everyone's party.
Forget taking the punchbowl away, this crowd is spiking it with LSD.
Nobody should believe that housing prices went down, unless they use a renters-equivalent number like they do in the CPI. But reports suggest that even that number is firming. Something is rotten in the State of Denmark.